Procter & Gamble's Sales Reflect the Luxury or Bust U.S. Economy
Sales of “premium” offerings are growing even as the company’s profits have declined.
by Eric Gardner, More Perfect Union
Sales at Procter & Gamble have slowed to a turtle’s pace, as consumers pull back on basic purchases after three years of near-constant price increases.
The news sent the consumer goods conglomerate’s stock spiraling down, while a closer examination of its earnings reports shows a company that is mimicking the complexities of the American economy: sales of a few high-end products are growing, while more mid-level alternatives are stagnant.
Nowhere is this more apparent than in the company’s Baby, Feminine, and Family Care division. Currently, P&G captures around $40 for every $100 spent on baby diapers in America, through its brands Pampers and Luvs. The Ohio-based consumer giant has long positioned Pampers as a premium offering, priced at around fifty cents a pair, while targeting Luvs towards middle-class shoppers at roughly half that price. The price of diapers increased 35 percent from 2019 to 2023, according to research firm Circana, with many low-income families cutting back.
In the most recent reporting period, after adjusting for currency fluctuations, the division’s profit decreased 11 percent, with baby-care products slightly lower than last year. The Wall Street Journal reported that Luvs buyers have flocked to online review sites, complaining about the brand’s quality. This month, the company delayed a long-expected revamp of the product, citing “supply chain challenges.”
The higher-priced Pampers, however, continued to grow in North America, as the company continued to unveil new features at higher price points. “The premium end continues to be doing very well,” the firm’s CFO Andre Schulten told investors this week.
Like most major consumer companies, P&G cited unprecedented supply chain issues throughout the pandemic as a justification for price increases. Now that the dust has settled, and supply chains have returned to industry standards, the company is reaping the benefits of higher prices against normalized costs.
Gross margin, which measures profit after accounting for the cost of producing the goods, reached nearly 50 percent this quarter–the highest number in 17 years.
“Our gross margin is at record levels,” Schulten said.
McDonald’s customers have hit their limit
McDonald’s customers have finally hit their breaking point in terms of how many price hikes they’re willing to tolerate: this week, the world’s most valuable fast-food franchise reported its first global sales drop in four years.
“The consumer across a number of these markets is being very discriminating,” CEO Chris Kempczinski told investors on Monday. But it’s hard to imagine customers sending Big Macs back to the kitchen, as much as they are tired of paying $18 for a burger, drink, and fries.
Menu prices across the franchise have increased 40 percent since 2019. These price hikes helped push annual profits to almost $8.5 billion, which is more or less the same increase as the price hikes, in the exact same time period.
There are signs, however, that the company is recalibrating. In June, McDonald’s launched a $5 bundle in hopes of re-attracting low-income consumers, and early results indicate it’s working. The trial promotion was supposed to end in the middle of summer, but 93 percent of restaurants have extended the deal until the end of August.
“Remember that the customer that's coming in for the $5 meal deal, they are buying more than just the $5 meal deal because we see that average check-up around a little over $10,” Kempczinski said. “The $5 meal deal is connected in the marketplace.”
Boeing picks new CEO
Reeling from a storm of bad news capped by a disastrous congressional hearing last month, the troubled aerospace manufacturer Boeing has picked a new chief executive.
Kelly Ortberg, a former engineer who previously worked as CEO for the now-defunct parts supplier Rockwell Collins, was announced as the new Chief Executive of Boeing on Wednesday. Ortberg is inheriting critical structural manufacturing issues caused by past managerial incompetence, problems that threaten the nation’s entire aerospace industry. His arrival also coincides with a tense contract negotiation with the machinist union that tried to stop those problems from happening.
On Wednesday, the company posted a $1.4 billion loss for the quarter while also seeing sales drop 15% compared to 2023. The poor showing largely contributed to quality issues at its failed 737 MAX line that culminated in two plane crashes that killed 346 people. In 2021, Boeing paid $2.5 billion to settle criminal charges and executives reassured investors and the public that its problems were fixed. Earlier this year, a door panel blew off mid-route on a routine Alaskan Airlines flight.
In response, American regulators placed additional production oversight on the company, ultimately limiting the number of monthly planes manufactured. This restriction ensures proper quality control at the company but also limits the amount of money the company brings in–as the company is paid when completed planes are delivered to customers. In April, the company announced that it had raised $10 billion by issuing bonds to cover the cash gap.
So far, the appointment has been celebrated by financial analysts, with the Wall Street Journal reporting that union leaders have previously credited Ortberg with building a solid company culture at Rockwell Collins.
Since 2020, the once esteemed aerospace giant has lost nearly $25 billion dollars,
Odds and ends
Howard Schultz is currently embroiled in allegations of double-dealing, as he owns a 19 percent stake in a company that he pushed Starbucks to source olive oil from. A similar arrangement contributed to Red Lobster’s bankruptcy, as the company paid higher prices to source shrimp from just one company, controlled by the same major investors.
Merck reported that sales of its blood thinner Januvia declined 27 percent due to lower prices and lower US demand. The drug was selected as one of the 10 initial drugs slated for negotiations with Medicare. The company is suing the government to stop the program’s implementation. Overall, Merck reported disappointing earnings, largely due to low sales of an HPV vaccine in China.
Non-COVID revenue at Pfizer increased 14 percent, a big turnaround for the company that misread demand for COVID products last year. In the aftermath, the company announced $4 billion in cost-cutting measures; earlier this month, the company laid off 200 employees in North Carolina after a failed drug trial.