NEWSWIRE: 1/29/21
- Procter & Gamble's profits surged in the last quarter, buoyed by growing demand for high-end staples, particularly cleaning products. P&G is getting a boost from affluent consumers who are obsessed with cleanliness and spending more time at home. (The Wall Street Journal)
- NH: Last week P&G (PG) released its latest earnings report, and profits are up. The consumer goods company reported $19.75 billion in sales, + 8% QoQ. PG has now raised its estimate for calendar year YoY growth from +4%-5% to +5%-6%.
- In a typical recession, high brand-equity companies struggle with sales. The normal pattern is for everyone to downshift their household spending, which pushes everyone a bit more toward discount and private label goods--and away from the more expensive premium brands. If you're feeling at all pinched, why buy P&G products like Cascade or Gain when you can buy a no-name or commercial product for half the price?
- But of course this is no typical recession. This time around, the top three quintiles of the income distribution have been left relatively untouched. (See "Credit Scores Rising.") It's the bottom two that are getting hammered, and most of these households are already buying discount.
- Furthermore, so long as the pandemic rages, Americans are obsessing over cleanliness. With Covid-19 deaths still trending above 4,000 daily, consumers don't want to take any risks on managing personal and household hygiene with anything they don't deeply trust. Yes, I know, it may be irrational, but this isn't the time to skimp and buy anything less than the best.
- And that's not all. People are also spending more hours of the week at home than ever before. While offices and commercial buildings buy cleaning supplies in bulk from wholesalers, workers are now buying the equivalents from retailers. This obviously works to P&G's advantage. (This same wholesale-retail disequilibrium explained the toilet paper shortage at the beginning of the pandemic.)
- Unfortunately for P&G, its improved earnings no longer seem to be translating into stock growth. PG is still up over its pre-pandemic price, but it has been sinking steadily since the beginning of the year. Most likely investors sense that, with the vaccine rollout underway, the Covid-19 boost won't last much longer. They're betting that once the pandemic is over, consumers will flip a switch and go back to their former buying habits.
- I think investors are getting ahead of themselves. Long term, I am no big fan of the high brand-equity end of household retail. (See "The Ebbing of brand Equity.") But the ebbing of the pandemic, in terms of its behavioral impact, is going to be more gradual than most investors think. And over the near term, at least, this should be good news for P&G. (Watch "Covid-19 Update, January 14.")
