Procter & Gamble, in a Strategy Shift, Moves to Raise Prices

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Procter & Gamble
Co.


PG 0.51%

said it was raising prices on some of its biggest brands, a strategy shift after the consumer-products giant reported another quarter of lackluster revenue growth.

After more than a year of trying to combat weak demand with lower prices on staples like Tide detergent and Gillette razors, executives said Tuesday the company was changing course and would seek to push through large price increases on Pampers diapers and Bounty paper towels.

P&G is just the latest big U.S. company raising prices amid a strong U.S. economy and healthy consumer spending. But unlike manufacturers or food brands such as Coca-Cola Co., P&G didn’t highlight tariffs or trade disruptions for its shift. Rather, executives pointed to market dynamics.

The company’s finance chief,

Jon Moeller,

said the price increases will “restore structural economics,” and could reverberate through the industry as competitors respond. P&G and rivals have been cutting prices as consumers are less willing to pay top dollar for name-brand household goods and the established brands have faced competition from low-price online startups. He said other goods beyond those named could see increases.

“Pricing does introduce uncertainty and will impact demand and volume,” he said in a conference call Tuesday morning with reporters. “We will be watching closely and adjusting on a dynamic basis.”

P&G said it was increasing prices on its Pampers brand in North America by 4% on average and raising prices by 5% on its Bounty, Charmin and Puffs brands. The increases would go into effect late this year or in early 2019.

Despite the larger than usual increases, P&G still forecast modest revenue growth in the current fiscal year, which began July 1. P&G said it expects organic sales to rise between 2% and 3% for the year, compared with 1% in the year just ended. Organic sales omit factors such as acquisitions, divestitures and currency fluctuations.

P&G has let retailers know about those increases, which affect products that face higher commodity costs, a P&G spokesman said. The company may raise prices on other products, and cut others. Luvs diapers, for instance, will get cheaper.

Executives at rival

Colgate-Palmolive
Co.

have also promised higher prices. On an earnings call Friday, Colgate executives said they are increasing prices in emerging and developed markets in the second half of the year in response to the rising cost of raw materials.

But executives cautioned that increases would be modest given the heavy discounting in the consumer-staples sector.

“Given the current promotional activity, we may not see competitors follow immediately, and we intend to remain rational, but we also understand the need to protect our market shares,” Colgate’s Chief Executive

Ian Cook

said on the call.

P&G, which added activist investor

Nelson Peltz

to its board earlier this year after a contested proxy vote, has been under pressure to show that it can win back shoppers who have turned to lower-cost and upstart brands, or cut back purchasing altogether.

In the fourth quarter, which ended June 30, profit at P&G fell 15% to $1.89 billion, or 72 cents a share. Total revenue rose 3% to $16.5 billion, boosted by currency swings.

The company said organic sales rose 1%, as lower prices in four of its five major product segments offset volume gains. P&G said prices overall fell 2% during the quarter. In its fabric and home care business and its grooming division, price drops were a bit steeper, falling 3%.

In the company’s grooming segment—which includes products like Gillette razors—organic sales dropped 3%. Organic sales rose 7% in the beauty division, which includes hair-care products, and 2% in fabric and home care.

P&G Chief Executive

David Taylor

said sales remain too weak. “I am confident that interventions are working,” he said in a call with analysts.

Shares of the company, down 13% year to date, were little changed in early trading.

Write to Sharon Terlep at [email protected] and Allison Prang at [email protected]



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