Procter & Gamble (NYSE:PG) revised its annual profit forecast downward on Tuesday, reflecting a writedown in the value of its Gillette business. Despite the reduced outlook, P&G’s impressive profit margins during the second quarter propelled its shares up by over 5%.
P&G demonstrated resilience with better-than-expected profit margins, even as prices dipped in the United States. The company maintained strong margins in European markets, contributing to the overall positive results. Strong demand for P&G’s daily-use products, particularly in grooming and home-care segments, led to a 4% increase in overall volumes in the United States and a 3% rise in Europe.
The company’s gross margin received a significant boost of 520 basis points in the second quarter, supported by increased demand, easing production costs, and sustained high product prices, especially in Europe.
Analysts noted that P&G’s ability to maintain robust margins was a key positive factor, providing a cushion for delivering back-half earnings despite a core profit outperformance in the quarter.
However, P&G’s annual profit forecast suffered after a $1.3 billion charge, disclosed in December, related to a reduction in the book value of its Gillette business. The company had previously estimated up to $2.5 billion in charges over two fiscal years due to the write-down and restructuring in certain markets.
The revised fiscal 2024 earnings outlook now expects a range from a 1% fall to in line with fiscal 2023 earnings per share, compared to the earlier forecast of 6% to 9% growth.
While overall volumes remained flat in the second quarter, average prices across product categories increased by 4%. P&G’s net sales rose 3.2% to $21.44 billion in the quarter, slightly missing LSEG estimates of $21.48 billion. Slowing demand for products, including the beauty brand SK-II in China, contributed to this outcome.
In China, P&G noted a recovery since COVID that is non-linear and somewhat bumpy, leading to a 15% decline in organic sales in the second quarter. The company’s CFO, Andre Schulten, highlighted challenges in predicting the macroeconomic and geopolitical landscape in Greater China, APAC, and the Middle East.
P&G’s second-quarter core profit came in at $1.84 per share, surpassing estimates of $1.70. The complex regional dynamics, especially in China and other focus markets, contributed to flat volumes despite growth in North America and European markets, according to Amanda O’Neill, lead analyst at S&P Global Ratings.
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Author Faith Yakubu 
