Consumers are accepting more price increases than Procter & Gamble had anticipated. The manufacturer of Gillette and Oral-B saw its turnover rise by 7 % at the beginning of the year.
Price increases versus cost increases
“As we’ve taken pricing across the year, so far we see price elasticities — the consumer reaction relative to the increase we’re taking — to be about 20% to 30% more favorable than we would’ve assumed, based on historical data”, Procter & Gamble CFO Andre Schulten said, according to CNBC. The price increases are more than enough to offset the rise in costs.
In the previous quarter, net sales rose 7 % to 19.38 billion dollars (nearly 18 billion euros), which was higher than the 18.73 billion dollars expected by analysts. Organic growth was 10 %, although volume increased by only 3 %. Most of the growth was therefore due to price increases, as other FMCG companies have also admitted.
2.5 billion higher commodity costs
Rising commodity and transport costs put pressure on margins, although higher prices and productivity gains helped to offset this. The gross margin fell by 4 percentage points, while the operating margin ultimately fell by only 0.1 percentage point. P&G expects inflation to rise further in the next quarter and costs to continue to increase.
For the fiscal year ending in June, Procter & Gamble now expects sales growth of 4-5%, up from 3-4% previously. The margin is likely to be around 3%, due to a 2.5 billion dollar increase in raw material costs, 400 million dollars in additional transportation costs and 300 million dollars in negative currency effects.