Makers of household goods like Procter & Gamble have benefited from Coronavirus stockpiling. But there will also be costs as second-wave impacts start hitting.
Procter & Gamble benefited as consumers panic-bought paper goods in March.
PHOTO: LISA BAERTLEIN/REUTERS
Procter & Gamble is cleaning up as consumers stockpile daily essentials. But the coronavirus crisis could still have worrying spillover effects for it and other makers of household goods.
The sector has had a good crisis so far. Shares in P&G, PG -0.54% which makes Charmin toilet paper and Bounty paper towels, were basically flat so far this year through Thursday, compared with a 13% decline in the S&P 500. Rival Kimberly Clark, maker of Cottonelle and Kleenex, is up 3%.
In the quarter through March, P&G’s organic sales, which strip out foreign-exchange movements and acquisitions, rose 6% from a year earlier. The fabric and home care division, which includes Tide detergent and Swiffer pads, posted especially strong organic-sales growth of 10%.
But the results weren’t all so fresh and clean. The grooming division, home of Gillette, saw a 1% organic-sales decline. The skin-care division grew just 1%, dragged down by high-end brands like SK-II. It isn’t just that people are less worried about their appearance as they shelter at home—they also need to mind their budgets.
Investors need to start thinking about the next phases of this crisis, and P&G’s results contain clues as to what may be coming. Consumers who panic-bought household goods during the first quarter will at some point slow down and start destocking, especially if they are among the many unfortunate millions who have just lost their jobs. As the economic downturn sets in, consumers also will become more price-sensitive and turn to private-label alternatives.
“We have never faced the level of unemployment that we’re likely to see in this country and potentially in others, and we don’t know how long that will occur for,” Chief Financial Officer Jon Moeller said on a Friday conference call.
This is unlikely to be great for P&G in particular, which occupies the premium price point in most of its categories. Mr. Moeller said there is potential for a shift in preferences to trusted and established brands. That may well prove to be wishful thinking.
Despite the strong quarter, P&G didn’t raise its organic sales growth guidance for the full fiscal year through June. As Mr. Moeller noted, the implied guidance for the fourth fiscal quarter is a range of down 2% to up 2%, reflecting significant uncertainty.
P&G actually lowered its guidance for all-in sales growth in the full fiscal year to a range of 3% to 4%, down from 4% to 5% earlier, on weaker foreign currencies. This will likely remain a headwind in the coming global economic downturn, especially if the virus’s spread starts intensifying in the Southern Hemisphere and emerging markets.
P&G and its peers in household goods remain much better positioned than those in most other sectors. But they will still face uncertainty, and pain, in the months ahead.
Operations and Supply Chain Management 