Shoppers around the globe are cutting down on optional purchases like fine fragrances and turning to cheaper store brands for everyday items like toilet paper, sapping sales from consumer stalwarts like Procter & Gamble, Colgate-Palmolive and Kellogg.
CINCINNATI (AP) — Shoppers around the globe are cutting down on optional purchases like fine fragrances and turning to cheaper store brands for everyday items like toilet paper, sapping sales for consumer stalwarts like Procter & Gamble, Colgate-Palmolive and Kellogg.
P&G reported a drop in quarterly profit Thursday — nearly 4 percent — for the first time in eight years, and the world’s largest maker of consumer products forecast that its full-year sales would fall as well.
Kellogg Co., the maker of cereal and snacks, said sales were off 3 percent, but its profit climbed 2 percent behind cost cutting. And while P&G rival Colgate-Palmolive Co. saw first-quarter profits up 9 percent on higher prices and cost cuts, revenue was down 6 percent.
Even grocery-store operator Safeway Inc., which has seen sales of its store brands remain strong as consumers keep spending down, lowered its full-year outlook after Thursday’s first-quarter report showed revenue down 8 percent and profits down 25 percent.
The results showed that even with the stock market rallying over the past two months, consumers are still nervous about the economy and are watching their spending. Overall, U.S. consumer spending fell for the first time in three months and income growth slipped for a second straight month, the Commerce Department said Thursday.
“Even consumer staples companies aren’t immune,” said Bill Pecoriello, an analyst who heads ConsumerEdge Research LLC. “They may be less impacted than what you see in the auto industry, but they aren’t immune.”
Many economists have said consumers may not really resume spending until they see some improvement in the job market. That is still a concern, as the number of people continuing to draw unemployment benefits jumped to more than 6.27 million — the highest on records dating back to 1967.
Shares of Kellogg, which reported good cereal sales in North America, rose 7 percent Thursday, but P&G, Colgate-Palmolive and Safeway all were down.
Pecoriello said the companies’ varied profit results were affected by their geographic exposure to foreign exchange issues — the stronger U.S. currency means revenue from international operations translates to fewer dollars — and the kinds of products they sell most.
Colgate’s tooth care products are less vulnerable to store-brand competition than P&G’s Charmin toilet paper or Pampers diapers, for example. He said future results will be tied to overall economic conditions.
“That’s really a question of how the long the consumer is going to be hurting,” he said.
Tom Graves, a Standard & Poor’s analyst, said Kellogg’s namesake cereal sales were probably helped by people eating more breakfasts at home, but said some consumers are likely to try store brand versions. S&P cut its recommendation on Kellogg shares to “hold” from “buy.”
P&G, which makes Tide detergent, Pampers diapers and Gillette shavers, trimmed its full-year outlook and expects slow sales to continue through June. With conditions so uncertain, it didn’t offer an outlook for its new fiscal year that begins in July.
The company’s sales fell 8 percent overall and across its broad geographic portfolio, with double-digit declines in discretionary areas such as fine fragrances, salon hair care and the Braun brand of electric shavers and small appliances.
P&G has been promoting its well-known brands by emphasizing their value to customers and said it keeps investing in innovation and productivity.
“There is some trade down, there’s obvious pocketbook pressure,” Chairman and CEO A.G. Lafley told investors in a conference call. “I hope if we can at least hold or ideally grow share, as we are with many of our brands, we’ll come out of the cycle stronger and we’ll build from there.”
P&G earned $2.61 billion, or 84 cents per share in its fiscal third quarter, compared to $2.71 billion, or 82 cents per share, a year ago. The company had fewer shares outstanding after J.M. Smucker Co. took over P&G’s Folgers coffee business in a $2.95 billion stock deal last year.
Revenue dropped to $18.42 billion, also hurt by the stronger U.S. dollar. Analysts expected earnings of 80 cents per share on revenue of $18.9 billion.
P&G says it now expects to earn $4.20 to $4.25 per share for the full year, from an earlier range of $4.20 to $4.35. Analysts surveyed by Thomson Reuters expect $4.21. The company forecasts net sales to fall 2 percent to 4 percent for the year, after earlier forecasting that they would be flat to down 4 percent.
Lafley said consumers trading down was particularly apparent in favor of generic drugs, hurting P&G’s pharmaceutical business. The company has said it could leave that business, and Lafley said there has been significant interest from potential buyers.