The Procter & Gamble Company (NYSE:PG) Q3 2023 Earnings Call Transcript - Page 4 of 7 - InvestingChannel

The Procter & Gamble Company (NYSE:PG) Q3 2023 Earnings Call Transcript

Our suppliers continue to try to recover their input cost increases, their labor inflation, and that continues to be a discussion that is ongoing. I think as we mentioned in CAGNY, some of those contracts roll over 12 months, 18 months. So, there’s — these headwinds and these discussions will continue to be with us. Overall, we’re expecting, as we always do, spot rates will hold on, that’s what’s based and underlying our planning for next year and our guidance for this year.Operator The next question comes from Andrea Teixeira of J.P. Morgan. Please go ahead.Andrea Teixeira Thank you. Good morning. So, how should we think about the upside in Beauty? And both you Jon and Andre spoke briefly about travel retail being an upside in Asia. How should we be thinking also on the other side, lapping the triple pandemic and the respiratory benefit you had in healthcare?

It seems you could benefit from digestive recently, but how should we be thinking about the other segments?And as we — just a clarification. As we put in the embedded organic in the fourth quarter is a 4%. But it seems as if you are — as Andre commented, the exit rate on your volume is potentially flat, bear in mind, of course, the potential risking in Europe. But should we be thinking more of a better quality in terms of the delivery in organic, so even though it would be a 300 basis points deceleration on a sequential basis, you’d still have better volumes, maybe flattish to maybe only slightly down and a 4% price component in there? Thank you so much.Andre Schulten Hey, Andrea.Andrea Teixeira Hi, Andre.Andre Schulten On the category specific questions, yes, we see SK-II as potential beneficiary of travel retail reopening.

Overall, SK-II is recovering well outside of that channel. In China, Mainland, we saw 8% growth in the quarter. In Japan, we saw 46% growth in the quarter. But the overall results are still held back by travel retail. So, I think, we will see a sequential improvement, but there are many gives and takes in the overall Beauty Care sector. So that needs to be seen in context with a lot of other dynamics that are going on around the world.On the Personal Health Care side, we continue to be very pleased with the results the team is delivering there. And we see sustained growth in this space across respiratory, digestive, nerve care. There are many parts of that portfolio that have very high growth potential. And in some of these areas as we’ve talked before, we’re still held back by supply constraints, which might provide upside in the future.But again, we have a combination of 10 categories across multiple markets.

Some of them will do well in a period of time, some of them will be held back by negative headwinds. So, we continue to strive for a balanced top- and bottom-line growth picture. It will be driven by different parts of the portfolio over different times.From a volume versus price component standpoint, what is important to understand is quarter four, we will start to lap price increases for the first time. So, we had about 8% of pricing in the base. So that will be a negative headwind to the top-line growth in quarter four. And while we see stabilization of volumes, I would expect that there still will be negative volume component to the growth in the near future. We have still Russia portfolio being with us as a negative headwind. China is slowly recovering, but not yet in positive territory from a volume perspective.

And as I mentioned earlier, the European consumer is under a lot of pressure with private label pricing not yet following the branded competition in those markets. So, pricing will come into the base. That will be a headwind to the top-line. I would expect there’s still a negative volume component in quarter four.Jon Moeller Yes. One thing to remember too is that we’ve just taken pricing in both the U.S. and Europe. And I don’t think that the data for the current quarter reflects a potential volume impact from some of that pricing. So, I would be looking at volume recovery — volume to slowly improve over time, but it won’t happen overnight.Operator The next question comes from Filippo Falorni of Citi. Please go ahead.Filippo Falorni Hey, good morning everyone.

Thanks for the question. Jon, clearly you’ve gone through a lot of transformation over the past five, six years that the company bought from a portfolio standpoint, organizational standpoint, superiority. Can you help us understand how you think internally these changes can help you navigate a potentially weaker consumer environment if what we’re seeing in Europe were to extend into the U.S. and some other parts of the world? Thank you.Jon Moeller Sure. And Andre may have some thoughts here as well. The — what I really like about the strategic choices that we’ve made and the approach that we’re taking currently is that it is the strongest approach I can think of. For a very healthy economic environment or a very difficult economic environment, the indicated actions don’t change.

So, think for example about our embedding in productivity as a fundamental part of our DNA. That’s something that serves us very well. A positive economic environment as critical in a downward economic environment. The importance of superiority to consumers and categories where performance drives brand choice, critical in both a good economic environment and a difficult economic environment.Focus of the portfolio on daily use categories where performance drives brand choice and superiority within each of those categories across product, package, communication, go-to-market and value for consumers and customers, I just — I don’t see anything in that, that I would change if we have — I mean obviously, tactically, there’d be some different decisions on the margin, but the broad underlying approach sets us up very well even if or particularly if we end up in a more difficult environment.Operator The next question comes from Olivia Tong of Raymond James.

Please go ahead.Olivia Tong Great. Thanks. Good morning. I wanted to follow-up on pricing, particularly on the new pricing, whether your view in terms of elasticities relative to previous rounds of pricing have — whether they’ve changed or stay similar to what you’ve seen already. And to the extent that you can draw some conclusions on markets where pricing is now starting to lap versus markets where you’re still rolling out price hikes, can you just compare and contrast what you’re seeing, especially since you’re starting to see some modest volume growth in the U.S.? Thanks.Andre Schulten Good morning, Olivia. The most recent round of pricing have gone into effect just in February and March across — and I’m calling out across Europe and U.S., because [those are somewhat] (ph) visible.

So, it’s hard for us, as Jon said, to determine what the outgoing elasticities are at this point in time. What I can tell you is that elasticities remain stable, remain favorable.And I think it is also a function of continued investment. It is a function of continued innovation. Every price increase or most price increases are connected to innovation, meaningful innovation for the consumer, that also guarantees retail support. They are linked to strong value communication. We’ve talked about Ariel Coldwater, Tide Coldwater, Charmin rollback, Olay value communication. And that is meaningful for consumers as they come under pressure. Many of our categories are categories where a consumer doesn’t want a risk failure. You don’t want to wash your clothes twice and you certainly don’t want to deal with a diaper failure.So, all of that I think is helping us to maintain favorable elasticities across the board.

The most important insight for us is — and that’s what you see us do in Q3, we need to continue that investment. We need to look for opportunities where our value is exposed, and I’ll call out Europe as an example because of private label pricing at a lower pace than the branded competitive set. It is critically important that we maintain that investment level to maintain the value equation.Where we see pricing lapping or I think where we have the strongest portfolio and the strongest execution in terms of innovation and superiority, we see favorable results, and the U.S. is a good example of that. Excellent in market execution by the team compared with a truly strong portfolio and strong innovation is delivering both relatively strong results to the balance of market, but also driving market growth recovery.Operator The next question comes from Chris Carey of Wells Fargo Securities.

Please go ahead.Chris Carey Hi. Good morning. Can you just talk about your playbook in Europe? You’ve noted European private label is delaying price increases a number of times on this call. We’ve heard similar commentary from others in Staples. If price gaps in private label remain wide, do you simply accept that new level? Or you need — do you need to do something about it to be a bit more offensive to close the gap? And I guess I say that in the context of Europe, of course, but also as a — bit of a litmus test for price competition that could play out globally in month and quarters ahead, and just how you think about managing through that type of dynamic? Thanks so much.Andre Schulten Yeah. I’ll start, Chris, and then I’m sure Jon will add.

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