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    Procter & Gamble Co (PG)

    Q3 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$157.29Last close (Apr 18, 2024)
    Post-Earnings Price$154.98Open (Apr 19, 2024)
    Price Change
    $-2.31(-1.47%)

    What went well

    • Strong performance and market share gains in key markets like the U.S. and Europe, driven by consistent innovation, superior products, and increased marketing investments. P&G's European business has achieved 12 consecutive quarters of 5% or higher growth. 
    • Robust productivity improvements are enabling margin expansion and continued investment in the business. P&G has a 3-year productivity master plan, providing great visibility and supporting future growth initiatives. 
    • Effective adaptation to market dynamics in China, with sequential progress excluding SK-II, and strong growth in categories like Baby Care (up 11%) and Appliances (up 14%), positioning the company for a return to growth in China. 

    What went wrong

    • P&G is facing challenges in adapting to significant channel shifts in China, especially in the Beauty segment, due to the rise of online platforms like TikTok/Douyin, which require a balance between transactional sales and brand equity building.
    • Rising SG&A expenses, with a 14% increase in marketing spend year-over-year, may impact profitability as the company continues to invest heavily in marketing to drive growth.
    • Delays in innovation in the U.S. mid-tier Baby Care segment, particularly with the Luvs brand, have led to competitiveness issues and a misalignment with consumer needs, affecting sales in that category.

    Q&A Summary

    1. Volume Growth Outlook
      Q: What's your outlook for volume growth and marketing ROI?
      A: Andre Schulten expects volume growth to improve in Q4 as effects like U.S. inventory reductions and China softness ease. He believes continued investment in marketing is yielding positive ROI, driving market growth and share gains.

    2. Commodities Impact and FY25 Planning
      Q: How will commodity costs affect fiscal '25 plans?
      A: Commodity benefits have mostly impacted fiscal year-to-date results. If current spot prices hold, there will be an impact next year, but Andre feels confident in handling it through innovation, reasonable pricing, and strong productivity. They have a solid three-year productivity master plan in place.

    3. Guidance and Q4 Expectations
      Q: Can you clarify guidance and Q4 growth expectations?
      A: They reiterated their organic sales growth guidance of 4% to 5% but did not point to the top end of the range. Andre expects Q4 organic sales growth to be within that range, driven by easing headwinds and continued market growth.

    4. Competitive Environment and Innovation
      Q: Are you preparing for increased competition and innovation?
      A: Andre welcomes market-constructive strategies from competitors, as it can grow categories. P&G constantly focuses on superiority and innovation, resetting the bar to win consumers for the next five years.

    5. SK-II Performance in China
      Q: How is SK-II performing in China?
      A: SK-II sales in China were down 30%, but brand sentiment is sequentially improving. The team is innovating and enhancing communication, but recovery in shipments will take time due to retailer inventory levels.

    6. Product Mix and Trade-Up Trends
      Q: Is trade-up becoming harder; what's the mix outlook?
      A: Andre doesn't see a change in consumers trading up within P&G's portfolio. The flattening of mix is primarily due to SK-II's 30% decline, which significantly impacts mix.

    7. U.S. Market and Destocking Impact
      Q: What's the impact of U.S. destocking; outlook for Q4?
      A: Destocking, mainly in Personal Health Care, reduced U.S. volumes but is considered a one-time event. Andre expects U.S. volume growth to resume, contributing to improved results in Q4.

    8. Elasticity in Baby Care
      Q: How is pricing affecting Baby Care volumes?
      A: Baby Care volume decline is partly due to elasticity, especially where innovation hasn't kept pace with pricing. They see an opportunity in mid-tier products like Luvs and plan to address it with innovation.

    9. European Market Strength
      Q: What's driving strong performance in Europe?
      A: Europe's strong results are due to consistent execution, strong innovation, and significant marketing investments. The team expects this performance to continue into 2025.

    10. Consumer Trade-Down Analysis
      Q: Are you seeing trade-down that isn't reflected in data?
      A: Andre argues that stable private-label share and growing market volumes indicate no significant trade-down. Internally, they track detailed metrics beyond private-label share to monitor consumer behavior.

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