Procter & Gamble to Focus on Innovation, Not Discounts, to Attract Wary Shoppers

Organic sales edged up 2% due to higher pricing and a more favorable mix, with growth in the company’s beauty, grooming and healthcare segments. - Justin Sullivan/Getty Images

Procter & Gamble reported higher first-quarter sales and said it was investing in product innovation instead of lowering prices to draw cautious consumers.

P&G Chief Financial Officer Andre Schulten said the company was innovating on products ranging from diapers to laundry detergent to combat competitors that are offering aggressive promotions, particularly in the fabric and baby care markets.

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The company’s product innovation has driven a 2% to 2.5% price increase across the company’s entire portfolio, while P&G expects a milder effect from tariffs this fiscal year, Schulten said.

“Consumers are a bit more careful in terms of purchase decisions and consumption. The market gets tighter. And some of the competitive response is increased promotion,” Schulten said. “This plan takes longer. It’s not as easy as throwing promotion funding out there.”

P&G has released Tide’s new Evo line of laundry detergent, which Schulten said has led to significant category growth and retailer demand, and made improvements in Pampers diapers and Olay body wash.

“The competitive aggressiveness has increased. And the way we respond is more structural. It takes a bit more time,” Schulten said. “While we will remain competitive in the short term, we truly believe the right answer here is to drive integrated superiority with innovation and investment in our brands.”

Shares ticked up 1.2% to $153.11. Despite the intraday gains, the stock has fallen 9.3% this year.

The company, known for Crest toothpaste and Pantene shampoo, said first-quarter sales rose 3%, to $22.39 billion, ahead of analysts’ forecasts for $22.18 billion, according to FactSet.

Schulten said organic sales grew 5% in Greater China, where the company has earlier used product innovation to combat a challenging consumer environment. “It gives us confidence that these interventions were driving. They take some time, but they ultimately result in what we want in terms of market growth and share growth,” Schulten said.

Overall, organic sales edged up 2% in the quarter due to higher pricing and a more favorable mix, with growth in the company’s beauty, grooming and healthcare segments.

Schulten said many consumers are trading up and that its premium products have supplied much of the company’s growth in some channels.

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P&G now expects tariffs to add about $400 million to its annual costs, cutting its prior estimate of $800 million in half. The company also halved its commodity cost outlook to $100 million from $200 million. Both estimates are after tax.

Schulten said the company will see a significant benefit from tariff exemptions the Trump administration is offering on products that can’t be naturally produced in the U.S., as well as a decline in retaliatory tariffs.

Looking ahead, P&G continues to forecast sales growth of 1% to 5% and for net earnings per share to climb 3% to 9% for the fiscal year, which ends June 30.

Chief Executive Jon Moeller said P&G is on track to deliver within those ranges despite a challenging consumer and geopolitical environment. The company is increasing its investment in innovation and marketing to boost value and growth, he added.

For the third quarter, the Cincinnati company logged a profit of $4.75 billion, or $1.95 a share, compared with $3.96 billion, or $1.61 a share, a year earlier. The increase was primarily driven by higher noncore restructuring charges in the year-ago quarter, the company said.

Adjusted earnings per share were $1.99. Analysts polled by FactSet expected $1.90 a share.

P&G said organic sales in its beauty segment grew by 6%, helped by new hair-care and personal-care products at higher prices. Organic sales rose 3% in its grooming unit due to new products at higher price points and volume growth, and ticked up 1% in its healthcare segment due to higher prices.

Write to Nicholas G. Miller at [email protected] and Kelly Cloonan at [email protected]

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