Q4 2022 Procter & Gamble Co Earnings Call
Importantly, this share growth is broad based nine of 10 product categories grew share globally over the past year.
Core earnings per share grew 3% for the year. Despite the 22 percentage point headwind to earnings from commodities freight and foreign exchange.
Our initial outlook predicted $1 8 billion after tax of headwinds we ended up at $3 $2 billion. So despite an incremental $1 4 billion of earnings pressure versus Ingoing plan, we delivered core EPS growth within our initial guidance range for the year.
On a currency neutral basis core EPS was up 5%.
Adjusted free cash flow productivity was 93%.
We increased our dividend by 5% and returned nearly $19 billion of value to share owners.
$8 8 billion in dividends and $10 billion and share repurchase.
Moving to the April June quarter.
Organic sales grew 7%.
Pricing contributed eight points to organic sales growth as additional price increases reached the market.
Mix was flat and volume declined one point, which is due to reduced operations in Russia.
Volume for the balance of the business, excluding Russia was up one point.
These strong company results across <unk>, and broad based category and geographic strength.
Nine of 10 product categories grew organic sales in the quarter personal health care grew mid teens.
<unk> was up low teens.
<unk> care grew double digits oral care up high singles.
<unk> and family care up mid single digits.
<unk> homecare and grooming each grew low singles.
Five of seven regions grew organic sales with focus markets up 3% and enterprise markets up 18% for the quarter.
Organic sales in the U S grew 6% up 24% on a three year stack.
European focused markets were up 3%, excluding Russia, Europe focused markets were up 7%.
Greater China organic sales were down 11%, mainly due to COVID-19 driven lockdowns in major regions of the market since Lockdowns have east, we've seen sequential market recovery, but somewhat slower than expected when we gave guidance last quarter.
And enterprise markets each of the three regions grew organic sales, 14% or more.
Global aggregate market share increased 50 basis points to 29 of our top 50 category country combinations held or grew share for the quarter.
On the bottom line core earnings per share were $1 21.
<unk>, 7% versus prior year on a currency neutral basis core EPS increased 12%.
Core operating margin decreased 30 basis points as gross margin pressure were largely offset by sales leverage and productivity improvements in SG&A.
Currency neutral operating margin increased 20 basis points.
Free cash flow productivity was 99%, we returned $3 $5 billion of cash to share owners. This quarter nearly $2 3 billion in dividends and nearly one 1 billion in share repurchase.
In summary, we met or exceeded each of our going in target ranges for the year organic sales growth core EPS growth free cash flow productivity and cash return to shareholders.
<unk> performance in very difficult operating conditions.
Now I'll pass it over to John Thanks.
Thanks Andre.
<unk> employees have delivered great results over the past four years in a very challenging macro environment against very capable competition.
And those four years P&G people have added more than $13 billion in annual sales and roughly $5 billion in after tax profit executing our integrated strategies with excellence.
I want to publicly thank our colleagues and product supply and R&D, who have enabled this progress with formulations sourcing manufacturing and logistics agility.
And extraordinary commitment to serve consumers customers and each other.
Through Lockdowns inbound supply shortages outbound truck shortages port blockages natural disasters and geopolitical tensions.
What P&G is people will have accomplished together is truly extraordinary.
Still we're very clear eyed about the trials ahead.
The list of challenges, we face heading into our new fiscal year is longer than I can recall.
The progress we've made and our collective collective commitment to our strategy is give me confidence we can manage through these challenges we've never been better positioned.
Our portfolio, that's focused on daily use categories, where performance drives brand choice.
<unk> already across product package brand communication in store execution and value.
Leveraging that superiority to grow markets and our share in them.
Radian business versus taking business powerful with our retail partners as we worked to jointly create value.
We have developed a productivity muscle that helps address some of the challenges we face.
We remain fully committed to cost and cash productivity in all facets of our business up and down the income statement and across the balance sheet in each business and Corporately croda.
Productivity improvement is a necessity to drive balanced top and bottom line growth and strong cash generation.
Success in our highly competitive industry and in this dynamic and challenging environment.
Wires agility.
Comes with a mindset of constructive disruption.
Our willingness to change adapt and create new trends and technologies that will shape our industry for the future.
In the current environment that agility and constructive disruption mindset are even more important.
Our organization structure is yielding what we intended our.
A more empowered agile and accountable organization with little overlap or redundancy.
Flowing to new demands seamlessly supporting each other.
This improved agility and accountability have been important enablers of our strong results in a dynamic environment we face.
Going forward there are four areas in which we need to be even more deliberate and intentional to strengthen the execution of the strategy.
The first is supply.
Improved capacity agility cost efficiency and resilience for a new reality in a new age.
The capability investments, we made prior to COVID-19 to improve our manufacturing and distribution networks have helped us to manage through the last few years with relatively few prolonged issues.
We're already making the next round of investments needed to ensure we have multiple multiple qualified suppliers for key inputs.
Sufficient manufacturing capacity to satisfy growing demand and flexibility to meet the changing needs of all types of retailers.
The second area is environmental sustainability integrated in to our product packaging and supply chain innovation work areas.
Irresistibly superior offerings that are sustainable.
New cardboard packaging on Gillette razors, as an improvement for the environment and a noticeably superior experience for consumers at the first and second moments of truth.
New fully recyclable paper packaging on our premium always cotton protection pads recently launched in Germany.
Laundry detergent formulations that deliver superior cleaning and cold water, reducing energy usage saving money and extending garment lifespans for consumers.
Third increasing our digital acumen to drive consumer and customer preference reduce costs and enable rapid and efficient decision making.
Increased digitization on manufacturing lines more use of AI more use of blockchain are not ends until themselves.
Our tools, we can use to delight consumers and customers at the most reasonable cost possible.
Fourth our employee value equation.
We're all gender identities races, ethnicities sexual orientations ages and abilities for all roles to ensure we continue to attract retain and develop the best talent.
By definition this must include a quality.
To deliver a superior employee value equation, there must be something in it for everyone.
These are not newer separate strategies, they are necessary elements and continuing to build superiority and reducing cost to enable investment to value creation and strengthening our organization there.
They are part of the constructive disruption we must continue to lead.
The operational costs and currency challenges, we faced over the last two years will continue in fiscal 'twenty three.
We began the new fiscal year with consumers face in inflation levels not seen in the last 40 years.
We know one of the most pressing questions out there is how we plan to deal with a severe cost and currency impacts we are facing.
$6 $5 billion after tax in just two years, nearly an $8 billion hit to operating profit.
I'll repeat what I said on our April 2020 earnings call. The best response to uncertainties and challenges we face is to double down on the integrated set of strategies that are delivering very strong results.
It won't be easy there will be bumps along the road.
But we have the portfolio superiority productivity.
It might not so humble opinion, the best organization in the World.
We have everything we need so again I think we are very well positioned.
We're committed to keep investing to strengthen the superiority of our brands across innovation supply chains and brand equity to deliver superior value for consumers in every priced here in which we compete.
Alongside our productivity work will continue to offset a portion of the cost impacts with price increases.
Whenever possible, we will close a couple of those price increases with innovation.
These moves will be tailored to the market category and brand.
As consumers face increased pressure on nearly every aspect of their household budgets, we invest to deliver truly superior value and combination of price and product performance to earn their loyalty every day.
So far elasticities in most categories, where we've taken price increases have been better than our historical experience.
Our strategic choices on portfolio superiority productivity constructive disruption and organization are not independent strategies, they reinforce and build on each other and the four focus areas that I mentioned strengthen the execution of that strategy.
When all of this was executed well, we grow markets, which in turn grow share sales and profit.
These integrated strategies are our pathway to delivering balanced growth.
We've been talking about the importance of balance for a long time in the context of medium, both topline and bottomline growth to deliver value for shareowners.
We're in a world that needs more from us now.
We need to expand that concept to serve and delight consumers customers employees society and our shareowners.
And I firmly believe that if we fail to do any of those we will fail to do all of them.
Our consumers increasingly rely on us to deliver superior solutions that are sustainable.
Our world requires that we do our part in this regard.
This challenge is also a wonderful opportunity to extend our margin of superiority further grow our categories and create more value all while positively impacting the environment and society.
These strategies were delivering strong results before the pandemic and have served us well during these volatile times and we're confident they remain the right strategic framework as we move forward.
With that I'll hand, it back to Andre to outline our guidance for fiscal 2023.
Sure.
Thank you John .
As we said in each guidance outlook for the past two years, we will undoubtedly experienced more volatility in the fiscal year ahead. This rings true again as we enter fiscal 2023.
The combined year on year profit headwinds from foreign exchange rates freight costs materials fuel energy and wage inflation are an even greater challenge in fiscal 'twenty three than they were in fiscal 'twenty two.
Based on current spot prices and supply contracts, we estimate commodities raw materials and packaging material costs to be a $2 $1 billion after tax headwind in fiscal 2023.
<unk> costs are expected to be higher in fiscal 2003 compared to the average cost paid in fiscal 'twenty, two by roughly $300 million off the text.
Foreign exchange rates have moved sharply against us even since our presentation at the Deutsche Bank Conference in June .
We now expect foreign exchange to be a $900 million after tax headwind in fiscal 'twenty three.
Combined headwinds from these items are now estimated at $3 3 billion after tax roughly equal to the challenge we faced in fiscal 2002, a 23 percentage point headwind to EPS growth or roughly $1 33 per share as we start the year.
As John said in his review of our strategies, we are working to mitigate the impact of these cost headwinds through a combination of innovation to create and extend the superiority of all brands productivity in all aspects of all work and pricing.
With this context I'll move to the key guidance metrics.
We expect global market value growth in our categories to moderate back towards the range of around 3% to 4%.
With strong price contribution offset by modest decreases in unit volume.
With the strength of our brands and commitment to keep investing in the business, we continue to expect to grow at or above underlying market level.
Aggregate market share globally.
This leads to guidance for organic sales growth in the range of 3% to 5% for the fiscal 'twenty three.
On the bottom line, we expect EPS growth in the range of in line to plus 4% versus fiscal 'twenty, two EPS of $5 81.
This guidance equates to a range of $5 81 to $6 five per share.
593 or up 2% at the center of the range.
Considering a six point headwind from foreign exchange this outlook translates to 6% to 10% EPS growth on a constant currency basis.
There are many possible scenarios that could cause us to be outside of this range to either side high or low.
While it's relatively easy to envision many possible scenarios steeper inflation deep recession, further geopolitical disruption or commodity cost reversion easing inflation peaceful conflict resolution.
It's very difficult to assign probability to any single scenario as a result, we set the range. We feel is most probable based on market conditions as we see them today.
We expect adjusted free cash flow productivity of 90% for the year. This includes the step up in capital spending as we begin to add capacity in several categories.
We expect to pay more than $9 billion in dividends and to repurchase $6 billion to $8 billion of common stock.
Bind the plan to return, 50% to $17 billion of cash to shareholders. This fiscal year.
This outlook is based on current market growth rate estimates commodity prices and foreign exchange rates significant additional currency weakness commodity cost increases geopolitical disruptions major supply chain disruptions or store closures are not anticipated within this guidance range.
Now I'll hand, it back to John for his closing thoughts.
The macroeconomic and market level consumer challenges, we're facing are not unique to P&G.
And we won't be immune to the impacts we've attempted to be realistic about these impacts in our guidance and transparent in our commentary.
As we've said before we believe this is a rough patch to grow through not a reason to reduce investment in the long term health of the business, we're doubling down on the strategy that has been working well and delivering strong results.
We will continue to step forward toward our opportunities and remain fully invested in our business. We remain committed to driving productivity improvements to fund the growth investments mitigate input cost challenges and to maintain balanced top and bottom line growth.
With that we'll be happy to take your questions.
Gentlemen, if you have a question. Please press star followed by one on your phone. If your question has been answered or if you would like to withdraw your question. Please press star followed by the Q.
First question comes from the line of Bryan Spillane.
Thank you operator, good morning, everyone.
Just had.
A couple of clarification questions related to the guidance and I guess the first one is just want to make sure I'm looking at this correctly if I look at the.
The implied step up in the tax rate and then the share repurchases they sort of offset each other so it seems like the underlying guide assume that.
Profit growth will equal whatever revenue growth is just wanted to make sure I'm understanding that correctly.
Yes.
<unk>.
Our core EPS guidance as I said in the range of <unk>.
<unk> to plus 4%.
With a tax rate slightly higher than what we've seen in the previous fiscal year.
This was driven by geographic mix changes and it's also driven by reduced benefit from <unk>.
Stock option.
Redemption.
From an operating profit standpoint.
You're in the right ballpark.
And I will leave it at that.
Your next question comes from the line of Steve powers with Deutsche Bank.
Yes.
Yes, Hey, thank you good morning.
You both spoke a number of times I think John reinforced at the end of the prepared remarks about the need to drive continued cost and cash productivity.
As I reflect on fiscal 'twenty, two I think I think it's fair to say that expense productivity.
An area that came in a bit a bit light of going in expectations that external expectations.
As you turn to page two.
To fiscal 'twenty, three and maybe maybe this is embedded in the answer to help drive that that operating profit growth you just talked about Andre.
What's your.
Confidence your line of sight to being able to accelerate.
Productivity.
In the year ahead.
Main question, if you could also comment on that.
Mix has been a.
Material driver of margin for a while now and I'm just curious to see your base case of how how mix impacts your margin outlook in 'twenty three as well. Thank you.
Good morning, Steve.
On productivity you.
Youre right it has to be a significant contributor to how we offset the inflationary cost impacts.
And enable reinvestment in the business in combination with pricing and innovation as we said before.
In fiscal 'twenty, two maybe let's go by area from a cost of goods productivity standpoint, we've talked about.
Prioritizing.
Production of cases to ship them and innovation.
We were capacity constrained.
That has limited our ability to get cost savings qualify it and through the P&L.
That is changing in this current fiscal year.
As the capacity situation eases as we add more capacity and catch up with demand, we are able to get more cost savings.
Suffice it.
Catch up on some of the cost savings we delayed in fiscal 'twenty. Two so we are expecting gross savings in the Cogs area to get back to pre COVID-19 levels in this fiscal year.
We are very confident in our teams they are.
Have a unlimited number of creative ideas to drive further productivity.
That still obviously is needed to offset inflation.
Which is equally strong in the fiscal year.
From a media standpoint, we have delivered significant productivity over the past years.
But we have reinvested all of that productivity and incremental media spend ahead of sales leverage ahead of.
<unk>.
Ahead of the productivity numbers, even that we generated.
And that productivity continues to strengthen.
We have developed a strong case.
Capability to target better both on TV as well as in digital.
Our ability to improve.
Improve effectiveness of reach and.
And quality of reach.
Is allowing us to drive cost effective reach down both in digital and in television, we shifted more and more spend into digital no more than 50% of all advertising is in digital.
And with that we are rolling out these capabilities to more and more businesses.
And more and more regions.
It allows us to increase productivity on media spend in the current fiscal year to the point, where we believe we will use some of that productivity not to reinvest fully but to actually flow through and help offset inflation and some of that you saw in Q4 combined with other effects.
General sales leverage and productivity on SG&A, driven by sales leverage as well in tech to solid flow through in quarter. Four that was 180 basis points help to operating margin and that should continue so in summary, I feel good about our productivity muscle it continues to strengthen.
And it will be needed to help offset some of the inflationary pressures we see.
On product mix.
We continue to see the same effect that we've seen in previous quarters, which has a negative impact to gross margin.
Roughly 130 basis points on the quarter.
Positive impact when you think about our portfolio.
What we see is that consumers that come into the P&G portfolio had we had a.
A big success and driving trial over the past two years those consumers as they try P&G products they tend to trade up.
And that trade up comes with increased.
Unit sales it comes with increased Penny profit, but the gross margin is slightly dilutive.
The example, we use generally.
<unk>.
Tide pods.
About a 50% premium in unit sales versus liquid detergent per load.
Significantly higher unit profit, but from a gross margin percentage standpoint, slightly lower so that same effect continues and we expect that trade up hopefully to continue in this in this fiscal.
Our next question from Dara <unk> with Morgan Stanley .
Okay.
Hi, guys.
I just wanted to discuss your level of visibility on the 3% to 5% organic sales growth guidance for fiscal 'twenty, three obviously theres a lot that builds into that but I was curious for your perspective and a couple of areas first just the competitive environment. What are you seeing in your categories with a strong 8% pricing this quarter our competitors.
I'm really matching pricing in your categories, and then B, you're only assuming modest P&G market share gains.
For fiscal 'twenty, three with the 3% to 5% corporate organic sales growth and 3% to 4% category growth. So.
Can you discuss what's driving the moderation in P&G market share gains.
And how potential pickup in private label share might play into that in the fiscal Q4 results.
Yes, thanks, good morning.
You are right our.
Topline guidance is as always grounded in what we expect in the marketplace.
We see moderation, we expect moderation in the overall.
<unk> growth in the market from the 5% we had over the past 12 months back to 3% to 4%.
And we expect pricing to be.
The main driver in that market growth with volumes slightly down.
That is a logical consequence of the broad based pricing that we are seeing in the market.
Assuming that will be elasticity.
We've seen elasticity, albeit better than <unk>.
Based on historical levels, but we're seeing elasticity in the market and thats reflected in our market growth assumption.
We have full confidence in our ability to compete in this environment our categories being data use categories that consumers don't deselect, even when they see high levels of inflation, our focus on irresistible superiority.
Our ability to make strong value claims based on the superiority the breadth of our portfolio across the price veteran value tiers and across channels.
<unk> us well to compete in the environment and most importantly, the strength in our innovation portfolio and the runway we have in driving household penetration and trade up within the portfolio has us focused really on driving market growth and that inherently drive share growth for us that's part of our.
Our assumption to market size and relative share growth.
As to the private labor point.
We see.
Private label re emergence in some categories.
Mainly in the paper categories.
In some regions broadly what I would tell you at this point, while we acknowledged private labor coming back partly due to supply dynamics in the base.
We are still able to grow share in those markets, where we see private label coming back in.
In the U S. In the recent periods private labor coming up a little bit in family care, but overall, we've been able to drive share growth on an all outlet basis.
In Europe .
Private label shares are stronger private labels are re emerging in some of the markets.
But for example, in the UK and France, and Germany, We all have positive share rights in the most recent period. So we're keeping a close eye on it but again I want to bring it back to the strategy of the portfolio of the <unk> innovation and we believe we are well positioned to continue to be well positioned to serve the consumer in this environment.
Yes.
I just want to add one thing to that.
I agree with everything that Andre said.
Both due to base period dynamics.
Across ourselves in our competitive set.
And as you said.
Due to many.
The dynamics that are impacting.
Both top and bottom line as we move forward.
There will likely be more volatility in the numbers.
There will be some bumps along the road.
And you'll have to be careful how much you read into any one week or four week period, we've got our eyes focused on a longer time period than that and we'll be managing accordingly.
Well go to our next question from Lauren Lieberman with Barclays.
Great. Thanks, Good morning, and two things I guess first is notwithstanding John your comments just now on scanner implied on scanner data.
In the U S market share performance.
It has changed course, and it's down slightly.
And it looks like a mix of things in terms of competitor supply, perhaps coming back but I was just curious if you could comment on U S market share performance in general.
Number one and then number two with China, which I believe is nine or 10% of your sales down 11% as significant I know.
Signal previously that China was challenged because of the Covid lockdowns, but it does seem like it's disproportionate.
Rate of decline versus what others are talking about so you can just talk to us a little bit about why your performance in China looks to be different than what we're hearing from some other multinationals.
Is it specific to market share, but specific to mechanics of your operations just curious on some insights there. Thank you.
Let me just start and response to that question, Lauren and then kick it over to Andre.
We need to keep coming back to the.
The strength of the top line.
So in the U S. For example, we grew 6% in the quarter or 8% over the course of the year as you know, 7% total company both on the year in the quarter and that strength is broad based.
That's that's important.
And we continue to protect project top line growth as well as modest share growth going forward.
I'll ask Andre to provide specific commentary on China.
Yes.
Very good Halo on the maybe I'll start quickly with a U S share.
If you'll let me.
You are right. If you look at the past one week in past four weeks, we see a kind of 10 to 30 basis points decline.
And as John said that will be wobbles, along the way the base period is extremely volatile if you look at absolute shares in the U S.
We're up over.
Over the last 52 weeks left 13 weeks to the last one week, we continued to increase absolute shares.
If you look at the period.
Youre reading at the moment just to give a bit more color.
The two businesses that are down over this period of fabric care and family care just to give color on the period effects here and the global fabric care had an amazing run in.
In the U S.
11% up on the quarter, 12% up over the year and high tier or low teens up over the past two years.
And we haven't.
I haven't kept up with capacity and that came to ahead in March.
Just as we are installing in starting up new capacity, we were supply constrained over the <unk> quarter.
There will be reduced merch investment, we reduced media investment because we just didn't have the cases that is fixed in July we are back in full supply as we started up new capacity emerges reinstated media reinstated.
Feminine care base period, you know the situation in feminine care and supply has been very constrained.
And again, you are reading, mainly based period effects not sequential share effects all outlet share of the U S continues to be up so we feel very confident in our U S business overall.
China Youre right, we have been significantly impacted by the Covid lockdowns the read for us across our categories footprint and regional footprint in China is that the market contracted.
Double digits over the quarter periods that we're reading.
And that is reflected in the results more importantly since.
Consumer mobility started to resume the Covid lockdowns.
Easing with seeing a return to growth in our categories. Our shares are responding favorably.
So we're hopeful that we returned to mid single digit growth in China over the next few quarters certainly the team on the ground is excited capable.
Has everything ready to go, but we need to see that consumer mobility.
Comeback.
And Lauren relative to your question on the.
The relative share performance.
Where you happen to have.
Manufacturing operations located.
It has a big impact on your ability to supply the market.
And we had we were pretty significantly impacted by.
The location.
Some of the shutdowns, namely Shanghai, where we have two manufacturing centers and important.
Contract manufacturer supply. So that's one of the reasons for <unk>.
Some of the.
The noise within the share comparisons.
Well go to our next question from Jason English with Goldman Sachs.
Hey, folks thanks for Slotting me.
Two questions I guess kind of coming back to some of the topics already been raised.
Market growth assumption.
<unk> deceleration.
This is coming from an anticipation that consumers are going to use less dose volume comes in trade.
Trade down so mix comes in or maybe we lost some pricing and bring some more promotions back some pricing comes in which of those three components do you expect to be the bigger driver of category at retail.
Yeah.
Yes, good morning, Jason.
Yes.
It is.
The combination of what you described.
As we said pricing generally comes with a level of elasticity.
Consumers don't leave the category, but they might.
Look at their dosing behaviors that might look a little bit closer at their inventories.
And draw that down over a period of time, specifically as they are more exposed to inflation broadly.
In the marketplace with the highest inflation in 40 years it would be naive to assume the consumer is not looking at there.
Cash outlay in that spending even in our categories.
We see.
The elasticity has been more favorable than historical norms too.
To date, we continue our assumption that they return to historical elasticity going forward.
We hope that's not the case, but our assumption is that that returns to what we've seen in the past.
The other element I would point to is just normalization of consumption patterns.
<unk>.
As we saw a very elevated consumption growth over the last two years.
Some of that with a total market level.
Probably return to more normal levels, our drop within that is for our brands and our categories to drive the wholesale penetration opportunities, which we have they are huge even in the most developed markets.
Even in the most developed categories and that's what we're going to focus on.
Well go to our next question from Kevin Grundy with Jefferies.
Great. Thanks, good morning, everyone.
My question is on potential.
Implications from the fall out with Walmart and your bigger retailers more broadly fueling margin pressure from.
From a category perspective, it's sort of well understood. The issues are more general merchandise and not consumer staples, but we have seen some ripple effects right.
They've announced a free fuel fuel charges, which we have seen so my question is really around any implications that you may be concerned about whether more difficulty taking price greater request for trade promotion. So any comments you have there in terms of what's going on with large retail customers would be helpful. Thank you.
Yes, good morning, Kevin I'll start and then John might want to add here.
Yes.
In general we have knowledge.
As you said Walmart.
Indicated that the pressure they are seeing is in general merchandise and apparel.
Our categories. When you think about the HBC categories broadly in Walmart and across all retailers in the U S really are still growing at a good clip.
Our.
Our interests are generally aligned with retailers of interests.
Our job is to provide the best possible value to consumers.
Defined by price and performance of the product.
We both want to drive footfall to the store, we both want to drive traffic to the shelf, we both want to drive consumption of our propositions.
In that sense, we continue to work constructively with Walmart and with all retailers to do that in the best possible way our.
Our strategy.
Grounded in the categories. We play in that are generally not categories that consumers.
Select even in difficult times.
Our Super Ot, our investment in innovation.
Our intention to drive category growth to win with our retail retailers versus purely focusing on share growth. All of those are good things in our mind all of those are good things in the minds of retailers the dialogue generally remains constructive.
<unk> focused on providing the best possible value to the consumer.
Well go next to Rob Aten Stein with Evercore.
Great. Thank you very much.
Wondering if you could talk a little bit about.
Your price increases in July .
Maybe give a sense of order of magnitude and rats early reception and then assuming.
The sort of elasticities that you expect.
How far can those increases go to offsetting.
The $3 two.
Our $3 $3 billion of headwinds that you outlined earlier.
Earlier, thank you.
Good morning, Rob.
The increases were taking and we've announced in June July are going into effect broadly and in this quarter July August September towards the latter half of it.
They are across most categories in the U S and we also announced pricing globally in the same ballpark mid single digits, but very.
<unk> differentiated.
In General I will tell you mid singles.
Probably mid to high singles.
But really tailored by country by brand by SKU.
To ensure that we do what I just described retailers are looking for.
<unk> provides the best value for their relevant shoppers in terms of absolute price point product performance.
The value tier.
The reaction to those price increases from a retailer environment is what you would expect.
Nobody is please.
Pleased about the continued inflationary trends that we're seeing.
But it remains a constructive discussion on how to best execute what we need both from a retail standpoint and from a manufacturer standpoint, which is recovery of inflationary cost measures to the extent that cannot be covered by productivity.
In terms of our ability to offset the latest inflationary trends across commodities and transportation.
Pricing is part of that but the pricing. We're taking is not covering the entire breadth of increases that we're seeing that needs to be.
Bind effort between pricing innovation, and driving trade up innovation and productivity, but we feel good about every part of that equation, our innovation innovation portfolio is stronger than ever our productivity muscle is strong and.
Pricing.
Dynamics in conversations remain productive.
Just one additional point.
Rob.
<unk>.
Yes.
Relative to the competitive environment.
We're seeing price increases on private label brands.
On mid tier offerings.
That are even higher in some cases than our own price increases I just offer that perspective as it relates to the.
The ability to hold pricing on and what it might mean for market share as Andre said, that's a fairly <unk>.
Structure of environment.
Your next question comes from the line of Carmel Gosh, Rollo with credit Suisse.
Hey, guys good morning.
A little bit more about the $1 33, such a substantial amount of money between commodities and FX and what's incorporated in there, particularly.
Whether it's forward purchasing agreements hedges any of those sorts of things and I'm asking for I guess.
An obvious reason, which is commodity cost very recently has come down and sure you don't feel the benefit immediately.
This is to continue which is possible how should we think about.
The impact that's going to have on the estimates you have given us so far.
Yes.
Monica Mu.
Yes, if you break it down.
The $1 33.
$2 $1 billion of the $3 3 billion is driven by commodities $900 million by FX and 300 million by transportation.
On the commodity side, so let me take each bucket here on the commodity side we've seen.
Some.
Of our commodities.
Annualize as you said and maybe even decrease.
But we've seen the majority of our commodity basket.
Still increase week over week month over month.
So when you look at our overall commodity exposure. It is at this point in time stable to increasing and our assumption going forward is at spot rates. So we assume stability within the commodity price environment.
Versus current spot, we do not hedge our commodities.
We are counting on our offsets within our total exposure between commodity FX and interest rates.
So spot is the assumption, we are using and we still see slight increases week over week month over month, certainly not to the tune that we saw at the beginning of 'twenty two.
On the foreign exchange rate.
That is the fastest increasing headwind.
Also a big headwind in quarter four that we had to overcome.
The interest rate differential.
Widening.
The U S.
So we anticipate that headwind could further extend but our forecast is based on current spot rate so that same methodology.
<unk>.
Commodities.
Transportation is a rollover versus the average price that we have paid in 'twenty one 'twenty two.
We see a little bit of easing here on the right side.
If you look at the load to drive a ratio in the U S. For example, thats down from a peak of 12, $2 four which is no more normalized.
And some of the spot rates are coming down that hasnt rolled over into contract rates at this point in time, if that happens that could be a tailwind.
Ocean freight youll see the number of ships waiting to get unloaded is decreasing so that's normalizing.
What I would offer is the offset obviously is energy prices fuel prices.
So this one might offer some relief.
But again, so far we see this offset by fuel cost.
Your next question comes from the line of Chris <unk> with Wells Fargo.
Hi, good morning.
So you noted that trade promotion was expected to be about $300 million after tax you're referring to promotional spending which is not an item I think typically.
You call out specifically.
It does seem like you're indicating a more intentional desire to pick up promotional spending.
In order to help the consumer whether some of these cost increases is that a fair characterization.
And then obviously your price increases across much of your portfolio.
Ahead, but are there specific categories or geographies, where you specifically intend to lean in or where you think the consumer or the retailer to need the most help but thanks for that.
Good morning, Chris.
On the promo side.
Not sure we intended to mention any number.
But let me describe where we are.
But John <unk>.
While you can certainly clarify afterwards, if that question remains open our promotion strategy.
Remains the same if you look at promotion levels. They are relatively stable I'll take the U S. As the as the market, where we have the best visibility and you have the best visibility.
We're running at about 27% of.
Merch, so thats volume sold on deal.
And depth combined.
That compares to a pre COVID-19 level or slightly above 30%.
To approve it lowered 16.
But that 27% that's been relatively stable over the past few quarters. So there is no significant increase in what we are observing we are not planning to increase.
Significantly.
<unk> again is a very technical decision that is being made at the market level at the category level.
But our intention to win is via innovation via.
We have clarity of value offer via our.
Superiority not price promotion.
Your next question comes from the line of Andrea Teixeira with J P. Morgan.
Thank you good morning.
My question is on RJR.
I guess I'm noguchi proactively.
Practically or more we actively introducing new price points, perhaps tied simply.
Pulling some of those levers too.
This lever is too.
To help the consumer.
Youre, saying that basically the retailers.
Our customers are requesting more of that help or that's too early to say and if you can walk through what has happened with beauty.
And in China, and the exit of the quarter.
That's one area that you could potentially.
<unk> improvement there.
You can help us kind of bridge that gap.
Morning, Andrea on revenue growth management that has been a priority for us not only in the recent quarter, but really over the past two to three years.
So what we're benefiting from now was very intentional design of our revenue growth strategies over that period of time, Inc.
Including.
Portfolio choices to have brand offerings available that cover different value tiers.
When you think about diapers for example, we have the premium tier.
Tempus pure at 38 cents per diaper smaller at about 35 diaper baby dry at 30.
And loves that 'twenty, a diaper. So thats. One example, and this exists across really all brands and we've been very intentional in building our presence in these different value tiers in the market. So we can serve consumers with different preferences between performance and.
And price.
We have also.
Spend a lot of time and design effort in creating the right price points.
And those price points relevant on everyday price, but also providing the right merch price points for different channels.
So that's work that's been going on in every category and then lastly, we've expanded our distribution across channels that consumers would go to in a more value driven environment think about hard discounters or dollar channel to ensure that we have strong relationships with our retail partners. They are strong distribution and <unk>.
<unk>. So that work, yes is indeed very important but it has been ongoing over a longer period of time as we take pricing. We ensure that we protect that strategy very carefully and thats why pricing is so differentiated between market spreads channels.
As we execute.
On beauty, China, what I will tell you is that.
We remain very confident that the Chinese market offers very attractive growth rates and very attractive value creation opportunities for us.
As mobility returns as department stores reopen as we develop stronger capability in digital channels.
As we refocus our business on the core brand equities.
We see progress.
The progress is still relatively slow because mobility is only just reopening, but we remain very confident that that business office.
A lot of opportunity and we are well positioned with our brands to play.
Your next question comes from the line of Bill Chappell with <unk> Securities.
Thanks, Good morning.
Hey.
John This maybe a little bit of a softball question, but I think we've run out of ways to ask about pricing in the consumer.
But in your prepared remarks, and then also I heard you on CNBC. This morning say P&G is the best organization in the World and I'm struck by that 15 years I've known you you've never been a cheerleader or something someone to throw out some <unk>.
And coming on a quarter when technically.
<unk> is down and you've missed this why.
Feel that way now.
Is that kind of turnaround or catching our breath.
Fleet.
You seem to want to get that message out there. So just anything more color you could give would be interesting and helpful.
There is clearly a desire.
To recognize extraordinary effort and results on the part of our.
Organization broadly defined.
Okay.
The challenges that have been overcome.
While.
Maintaining our improving service to consumers customer and delivering both strong top and Bottomline results, Alright, and Thats just not an accident.
And.
We've been trying to become even more intentional about.
The importance of our organization of our employee value proposition and delivering and sustaining superiority.
Overtime, so its just bill a reflection of that.
That reality and my confidence in this organization to continue to step up and step forward into the challenges, we face and continue to deliver.
Strong.
Progress from a business standpoint.
Yes.
Next question comes from the line of Olivia Tong with Raymond James.
Great. Thanks, Good morning, I'll be quick just two quick questions first are there more price actions planned versus what's already been announced is there anything being contemplated or everything that's been announced has been announced.
And then secondly, just if you could give some color on your innovation pipeline and how it skews this year versus previous years potentially more.
A more premium versus more value and how you think about it.
In terms of contribution to to price and mix. Thank you.
Hey, Olivia.
On pricing my answer is going to be quick what's announced as announced and everything else we can't talk about.
But it is going to be a combination of pricing productivity and innovation that's as much as I can tell you.
And we always are evaluating pricing and the necessity for pricing in every market every day.
So that's an ongoing discussion.
In terms of innovation.
Fundamentally our innovation pipeline looks out five years 10 years.
Innovation pipeline continues to be strong it continues to drive superiority across the full portfolio because thats the definition of Super Ot, It's not just the premium end and that doesn't really change. So when we talk irresistible superiority, we mean irresistible superiority at every price point for.
Every product for every consumer that we choose to compete for versus the relevant competitive offering.
And that drives the innovation strategy.
The strength of the innovation.
See it only improving.
And being broad based.
And your final question comes from the line of Mark Astrachan with Stifel.
Yes, thanks, and good morning.
Everyone.
One question on <unk>.
A clarification a reminder.
If you could help us on just the leverage that you get from an SG&A standpoint, given the volumes that we've seen over the last couple of years, and then put that into context of the.
A slight volume decline in the June quarter, just as a reminder, there it would be helpful and then more broadly.
How do you think about the.
Ability to sustainably invest given the exchange rates and specifically I'm talking about obviously and dollar strength versus a lot of other currencies, especially given some of your overseas.
Overseas competitors, who don't obviously have the translational impact of how does that influence if it does your ability to sustainably invest and maintain those levels of investment going forward. If the dollar remains where it is.
Thanks, Mark good morning.
On SG&A leverage so let me, let me start with the broader leverage points. So we generally see sales leverage when we see growth in the range of 3% to 4% roughly.
When we go north of 4% the leverage becomes relevant and material.
SG&A leverage so if we.
Grow in line with our Guy.
Guidance range that will provide a level of sales leverage.
Similar to what.
What we would typically and historically have expected.
On the clock side Youre right. The volume is the key driver for the leverage with flat volumes as we've seen in in the fourth quarter. There, obviously is no leverage, but thats, where our productivity efforts are even more important.
And that's why we're doubling down on our XL.
Acceleration of productivity improvements.
We'll talk about this more I think in our Investor Day, we'll give you a bit more insight on the supply chain three point all.
Just to put more substance around the runway that we still have and driving productivity.
That also is the answer to your second question, because Youre right foreign exchange rate represents a significant headwind for us might not represent that much of a headwind for some of our international competitors, who are well aware of that we've been to this movie.
It will be a few times.
Answer to our question is strong growth, serving the consumer better than everybody else delivering topline growth that.
That fuels, our ability to invest in combination with strong productivity. So it reinforces our growth model. It reinforces the need for all components of our strategy to work.
But I acknowledge foreign exchange rate is one of the more discriminating headwinds we have to do.
Great. Thanks for joining us. This morning, just one item to note before we sign off.
We will be hosting an investor day here in Cincinnati on the afternoon evening Thursday November 17th.
We will be sending out another save the date.
Reminder, in the next week.
But if you'd like more details please get in touch with the IR team.
Thanks, and have a great day and weekend.
Ladies and gentlemen that concludes today's conference. Thank you for your participation you may now disconnect have a great day.