Procter & Gamble (NYSE: PG) raises prices for most of its products due to the rise in the cost of raw materials and transportation.
Procter & Gamble has warned retailers about price increases for laundry and textile care products from February 28, and for personal care products from April. In total, the price increase will affect eight categories of goods, and this step will be made not only for the main one for Procter & Gamble of the US market, characterized by high purchasing power, but also abroad.
For the second quarter of the current fiscal year Procter & Gamble recorded organic growth of 6% across all five major segments of its business. Half of this growth was due to higher prices even before the aforementioned decision to raise the cost of a number of goods for retailers. The consensus assumed that the corporation's sales would grow by only 3%.
The rise in the cost of these products potentially pushes consumers to choose cheaper analogues, but P&G, in our opinion, is confident in its pricing strategy, since, according to management, its competitors face the same trends in prices for raw materials and transportation. At the same time, the impact of exchange rate differences is a bigger blow to P&G due to its broad global presence. In addition, the company believes that consumers of its products are willing to pay more for a brand they know and will not change their preferences. In this regard, the Procter management & Gamble is not afraid of damage to the business or loss of market share.
Due to the increase in raw materials and logistics costs, P&G actually recorded a decrease in gross profit by 4 percentage points, but it was leveled by optimizing costs and increasing prices.
P&G has improved its forecast for sales growth this year from 2-4% to 4-5%. The cash flow forecast has also been raised. This means that the corporation has a large amount of resources that it can invest in the business even while maintaining large dividend payments and actively repurchasing shares. For this year, the company plans to send $17-18 billion to shareholders against $15-16 billion set in previous goals. Despite the difficulties associated with rising costs, we give an optimistic forecast of P&G's financial performance and raise the target price for its shares to $176.