SK-II declined, and P&G's revenue only increased by 1% in the first fiscal quarter

According to the latest financial report released by P&G, although P&G organic sales reached a 7% growth in the first quarter of fiscal year 2023, due to the impact of exchange rate on net sales, P&G only slightly increased by 1% in the first quarter. In the face of the uncertain second half of the year and the impact of continued inflation in the US dollar, P&G was forced to lower its sales forecast.

On October 19, P&G released its financial report for the first quarter of fiscal year 2023 from July 1 to September 30, 2022. The financial report shows that in the first quarter of fiscal year 2023, P&G's net sales volume was 20.6 billion US dollars (about 148.913 billion yuan), up 1% year on year; Excluding the impact of foreign exchange, acquisitions and divestitures, organic sales increased by 7%; Net profit was USD 3.963 billion (about RMB 28.647 billion), down 4% year on year.

The financial report mentioned that the organic sales volume of the beauty section increased by 4% year on year, and the net sales volume was 3.961 billion US dollars (about 28.633 billion yuan). Due to the innovation driven sales growth and price rise, the organic sales of skin and personal care increased by a single digit, which was partially offset by the negative combination of SK-II's decline. Affected by the price rise, the organic sales of hair care increased by single digits, partially offset by the decline in sales due to the market shrinkage.

P&G mentioned in its 2022 annual financial report released at the end of July this year that the beauty section became the business with the largest decline in the fourth quarter, with a year-on-year decrease of 1% in net sales and 18% in net income. In the annual data, the net sales of beauty section increased by 2%, but the net income still decreased by 2%. P&G said in its annual report that the main reason for the decline was the closure and control related to the epidemic in Greater China and the reduction of business in Russia. The closure and control of the epidemic in China was important for the decline of SK-II sales.

In the first fiscal quarter, due to the rise in prices, the organic sales of Li Rong section increased by 5% year on year, with a net sales of 1.625 billion US dollars (about 11.747 billion yuan), but the net sales decreased by 4%. P&G said that part of the reason was that the growth slowed down due to the negative combination of the household market.

The organic sales volume of the health care section increased by 8% year on year, with a net sales volume of 2.757 billion US dollars (about 19.95 billion yuan). The sales of oral care organic products increased by a low single digit due to higher prices and favorable quality product portfolio, partially offset by the decline in sales due to market contraction. It was also mentioned in the financial report that the organic sales of personal health care increased by more than 10% due to the increase in prices, good combination and the intensification of cough, cold and flu seasons, and the organic sales of personal health care in all regions increased.

The organic sales volume of the fabric and home care sector increased by 8% year on year, with a net sales volume of 7.082 billion US dollars (about 51.194 billion yuan). Due to the rise in prices, the organic sales of fabric care increased by a high single digit, partially offset by the decline in sales. The market contracted and the market share was weak, mainly reflected in Europe. The increase in price also led to a high single digit growth in organic sales of home care, which was partially offset by the decline in sales compared with the high base period of increased consumption of cleaning products.

It is worth mentioning that the organic sales of home care in all regions have increased. In terms of price increase, the fabric and home care sector increased by 11%, higher than the other four sectors.

The organic sales of the MCH and home care sector increased by 6% year on year, with a net sales of 4.934 billion US dollars (about 35.667 billion yuan). Infant care organic sales increased by a median single digit due to higher prices, partially offset by lower sales, including a decrease in the Russian portfolio. Organic sales of female care increased by double digits, driven by higher prices and a positive geographical mix, partially offset by lower sales due to a reduced Russian portfolio. Organic sales increased in all regions. Home care organic sales increased by low single digits due to higher prices, partially offset by lower market volume and weak market share.

P&G mentioned that compared with the same period last year, the gross profit rate in this quarter decreased by 160 basis points and 130 basis points on the basis of currency neutrality. It is mainly due to the increase in commodity and input material costs, freight, product packaging and negative product mix that led to the decline in prices. At the same time, the sales, general and administrative expenses also have an impact on the net profit, and the revenue brought by the increase in sales makes up for these deficiencies.

Since fiscal year 2022, P&G has announced price increases three times. But now it seems that the price increase is not a long-term measure to maintain a substantial growth in performance.

As mentioned above, although organic sales increased by 7%, the adverse foreign exchange had a 6% impact on net sales. The organic sales growth was mainly due to the 9% growth brought by the price increase and the 1% growth brought by the active product portfolio, which was partially offset by the 3% decline in transportation volume.

P&G predicted that the sales volume in fiscal year 2023 would decrease by 1% to 3% compared with that in fiscal year 2022, and the impact of foreign exchange on sales growth would be 6 percentage points. P&G had previously predicted that the sales volume would increase by 2%. Compared with the previous fiscal year, P&G reduced the guidance range of total sales in fiscal year 2023 by 1% to 3%. The company maintained its organic sales growth prospects at 3% to 5%, down from 7% in the first quarter.

P&G maintained the expectation of diluted net earnings per share growth in fiscal year 2023, which was 4% higher than the level of $5.81 per share in fiscal year 2022. The company added that in view of the increase in foreign exchange impact, it is currently expected that EPS (earnings per share) results will be close to the low end of the financial year guidance range.

P&G said that in the 2023 fiscal year, due to the unfavorable foreign exchange rate, there was a headwind of about 1.3 billion dollars after tax; The rising cost of bulk commodities and materials led to a headwind of 2.4 billion dollars; In addition, the rise in freight costs also brought a headwind of $200 million. Together, compared with fiscal year 2022, the after tax profit of these projects in fiscal year 2023 is 3.9 billion dollars (about 28.192 billion yuan).

Jon Moeller, Chairman of the Board of Directors, President and CEO of P&G, said: "We achieved solid results in the first quarter of fiscal year 2023 when the cost and operating environment were very difficult. Despite the continued existence of major adverse factors, we were still able to maintain the growth of the sales of holding machines and EPS in the financial year within the guidance range."

Jon Moeller also mentioned that P&G will continue to be committed to an integrated strategy, that is, a centralized product portfolio, advantages, productivity, constructive interruption and a flexible and responsible organizational structure. "They are still the right strategy for us to address recent challenges, and will continue to achieve balanced growth and value creation."

It is reported that on November 1, 2021, Jon Moeller officially took over David Taylor as the CEO of P&G. Jon Moeller leads the second three quarters of fiscal year 2022. Jon Moelle once said in the two quarterly financial statements of fiscal year 2022 that sales growth was strong and continuous progress had been made in terms of profitability. In the second and third quarter financial statements, P&G set a target of increasing sales by 2% to 4% in the 2021 financial statements, increasing sales to 4% to 5%, and finally achieving the goal.