Procter & Gamble said Friday it will boost prices 5 to 10 percent on household products like Crest toothpaste, Dawn dish soap and Old Spice deodorants to combat rising commodity prices and increased pressure from foreign exchange.

The move came as the Cincinnati-based consumer giant reported its strongest quarter in five years as consumers snapped up products from Tide detergent to Pampers diapers. P&G said organic sales rose a robust 4 percent; the closely watched metric excludes the impacts of foreign exchange, divestitures or acquisitions.

Chief financial officer Jon Moeller hesitated calling the quarter’s results a “breakout,” but said the solid numbers were welcome after P&G’s long and continuing turnaround efforts.

P&G reported a $3.2 billion profit for the quarter ended Sept. 30 – up 12 percent from the same period a year ago. Total sales were $16.7 billion, virtually unchanged from the same period a year ago. The results beat Wall Street forecasts.

P&G sales volume surged 3 percent, although currency rates erased the increase. 

Still, Moeller cautioned investors from breaking out the champagne – he said the company would need to boost prices to recoup lost profit margin from commodities and currency woes.

“It’s clearly a very strong… satisfying quarter,” Moeller said. P&G last reported a 4 percent gain in organic sales in the same quarter in 2013. “We have informed retailers that we will increase prices on several products in home care (including dish detergents), oral care (toothpaste) and personal care (deodorants)… early next calendar year.”

Moeller added higher prices will complicate P&G’s drive to boost sales, saying “There will be volatility with these pricing moves.”

P&G’s big exposure to foreign exchange

A stronger U.S. dollar cut the Cincinnati-based consumer giant’s top line, prompting it to trim its fiscal year forecast on Friday.

The company predicted foreign exchange rates will chop 3 to 4 percent off total sales – that suggests a $2 billion to $2.7 billion impact.

P&G cut its sales forecast for the fiscal year ending June 30, 2019. The company said sales for the year would range between a 2 percent decline to flat, versus a previous guidance of unchanged to up 1 percent.

P&G, which does 60 percent of its business outside the U.S., is one of the 20-25 most vulnerable companies on the S&P 500 Index to foreign exchange pressures.

Weaker currency and higher commodity costs ate into P&G’s gross profit margin, which sank to 49.2 percent versus 50.3 percent a year ago – eliminating nearly $270 million in profits.

Still, Wall Street cheered P&G’s sales rebound. 

P&G’s stock surged, closing Friday at $87.30 or up 8.8 percent.

P&G’s organic sales rebounded in the U.S. and continued to grow in No. 2 market China, both up 4 percent. Worldwide developed markets in North America, Western Europe and Japan were up 3 percent while developing markets from Brazil to India were up 5 percent, Moeller said.

The company maintained its organic sales target to increase by 2 to 3 percent during this fiscal year, which ends June 30, 2019.

A company under pressure

Wall Street analysts expected P&G would generate a $2.9 billion profit before one-time items on sales of $16.6 billion, according to Zacks Research. Last year, P&G reported a $2.9 billion profit on sales of $16.7 billion for the same quarter.

Squeezed by rising commodity costs, P&G said in July it would increase North American prices for paper products: Pampers diapers, Bounty paper towels, Charmin toilet paper and Puffs tissues. The average list price will rise 4 percent for Pampers and 5 percent on Bounty, Charmin and Puffs.

The latest results come at a time when P&G is under intensified pressure to jump-start sales growth. Hedge fund investor Nelson Peltz joined the board this spring after a bitter proxy fight last year over the pace of the company’s turnaround.

Peltz won almost half of shareholder votes, campaigning to slash management layers and reduce major business units from five to three. P&G employs 10,000 workers in Greater Cincinnati.

In June, Peltz said his turnaround proposals were under “serious consideration” by his fellow board members. P&G’s disappointing results may have strengthened his hand to lobby for potential cuts.

In August, P&G disclosed it has shrunk its worldwide payroll to 92,000, the smallest since the 1990s. The company employs 10,000 in Greater Cincinnati.
P&G has cut 36,000 jobs since it first announced major layoffs in the spring of 2012. That’s a nearly 29 percent headcount reduction achieved through a combination of layoffs and business unit sales.

Taylor has pledged another $10 billion in cost cuts by 2021. A major portion of those savings will come from P&G’s move to fewer, larger and more automated factories.

For the latest on P&G, Kroger, Fifth Third Bank and Cincinnati business news, follow @alexcoolidge on Twitter.

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