Weak Consumer Demand In Developed Markets Can Weigh On P&G’s Q3’17 Results; Grooming To Remain In Focus

Leading consumer goods manufacturer, Procter & Gamble (NYSE:PG), is set to release its Q3’17 earnings on April 26^th.  CY’16 turned out to be a second consecutive year of revenue decline for P&G as the top line continued to suffer from currency headwinds and economic volatility in South America, though there were some signs of improvement on this front over the last two quarters, when the net sales of P&G over the last two quarters remained largely flat y-o-y. This was largely because the company got rid of over 100 non-performing brands whose sales were completed last year. On the positive side, despite a fall in top line, the adjusted EBITDA margins increased from 24.6% in CY’14 to almost 28% in CY’16, thanks to the focus on higher priced premium products.

Key Things to Watch Out For In The Q3 Earnings Release:

1. Sales growth in Q3’17 might have suffered because of a slowdown in market conditions in North America and Europe.
2. Grooming business will remain in focus because of new releases.

See our complete analysis for Procter & Gamble

Falling Consumer Demand In Developed Markets Can Be A Hindrance

In the previous earnings call, P&G had increased its guidance for full year organic sales growth from 2% to 2.5%. However, recently, both Unilever and Kimberly Clark reported below average results from North America & Europe as far as the sales are concerned, primarily because of low demand.  The Absolute Consumer Demand Index of America has been falling since September of last year, and its effects have started to weigh on the results of the consumer companies from these regions. Therefore, it is possible that P&G might have faced similar issues from the region during this period, given the fact that it derives over 60% of its net sales from this area.

P&G Looks To Exploit New Avenues In Grooming Segment With New Launches In Q3

Global men’s grooming market is expected to grow at around 5% annually to reach $43 billion by 2020. P&G owns the world leading brands in this category like Gillette and Braun. Gillette primarily operates in the wet shaving market, whereas Braun is into electric shavers and trimmers. Over the last few years P&G’s share in the wet shaving market has declined from over 70% to mid 60’s because of rising competition from smaller subscription based startups like Dollar Shave Club. Moreover, there has been a change in trend where Men now prefer to keep some kind of beard over a clean shave.  So, to cope up with this change, P&G is focusing on innovations in electric trimmers and hair grooming products from Braun and has launched new products in this category during the bygone quarter.  For the same reason, it also wants to tap the alternate growing market of shaving products for females and has recently introduced the upgraded version of Gillette Venus razors for women.

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