The Procter & Gamble Company Q4 2023 Earnings Conference Call Insights

Key highlights from The Procter & Gamble Company (PG) Q4 2023 Earnings Concall

Management Update:

• [00:01:48] PG said its organic sales grew 7%, driven by broad-based growth across all 10 product categories.

• [00:17:30] PG expects global market value growth in its categories to moderate in fiscal 2024. However, the company is confident that it can continue to grow above underlying market levels and build aggregate market share globally.

• [00:18:42] PG expects to increase capital spending in fiscal 2024 as it adds capacity in several categories.

Q&A Highlights:

• [00:21:10] Bryan Spillane of Bank of America asked how PG is approaching revenue rebalancing in its 2024 operating plan, in terms of level of investment, mix of spending, and focus on different segments and geographies. Jon Moeller CEO replied that P&G’s strategy for FY24 is to grow categories across volume and value, primarily through innovation and superiority. The company will focus on above-the-line investments and strategic promotions.

• [00:31:05] Dara Mohsenian at Morgan Stanley queried how PG is positioned to improve market share performance in the future, given recent reinvestments in marketing and the levels of payback from those investments. Andre Scholten CFO said that PG is happy with its steady market share and strong pricing contribution. It is confident in its strategy of driving superiority through innovation and providing value to consumers. PG is well-positioned to continue driving market growth and extending its share premium.

• [00:35:24] Lauren Lieberman of Barclays asked about the SKU simplification program, such as its geographic focus, maturity, and impact on existing productivity programs. Andre Scholten CFO answered that PG is launching a SKU simplification program to reduce the number of SKUs in its portfolio and improve shelf efficiency. The program is expected to generate top-line and bottom-line benefits for P&G and its retail partners.

• [00:39:16] Nik Modi of RBC Capital enquired about the drivers of consumer behavior in China, and whether it is due to COVID-related factors or economic factors. Jon Moeller CEO said that PG’s business in China is recovering steadily, but there are still some underlying economic challenges. The company is optimistic about the long-term prospects for China.

• [00:39:48] Nik Modi of RBC Capital also asked how PG plans to manage its innovation pipeline in fiscal 2024, given the expected increase in competition for shelf space. Jon Moeller CEO answered that as PG rebalanced its supply chain, the company was able to focus more on productivity and innovation. This led to strong growth in the hand dishwashing business, and P&G is confident that it can continue to innovate and grow market share.

• [00:47:58] Andrea Teixeira of JPMorgan enquired if PG is seeing more need to defend entry-level pricing with promo in the U.S., and is PG comfortable with its price pack architecture as it stands now. Jon Moeller CEO replied that PG will use pack size, channel offerings, and value communication to provide value to consumers facing economic pressure, rather than simply lowering prices.

• [00:48:43] Andrea Teixeira with JPMorgan also enquired if commodity costs come in better than expected, would PG reinvest the savings or flow them through to the bottom line. Andre Scholten CFO said PG’s guidance for FY2024 includes $800 million in commodity help, offset by $400 million in FX and $200 million in interest expense. Any incremental help from commodities will take time to flow through the P&L, and investment decisions will be made on a case-by-case basis based on ROI.

• [00:51:53] Callum Elliott of Bernstein queried about PG’s approach to retail media spend, who is responsible for it, and whether it will be incremental spend or a shift from other marketing channels. Andre Scholten CFO replied that P&G includes all media spend in its marketing mix and is exploring the effectiveness of retail media. It is working with retail partners to maximize the return on retail media spend by sharing data and optimizing campaigns. Retail media must earn its place in the mix based on its return on investment.

• [00:54:51] Olivia Tong of Raymond James asked if PG believes that the improvement in cost savings in fiscal 2023 is sustainable or is it an elevated level due to last year’s depressed levels. Andre Scholten CFO said PG is confident in its ability to return to pre-COVID levels of productivity across cost of goods, media, savings, and general productivity. The company is also confident in its ability to generate $1.5 billion in net savings through Supply Chain 3.0.

• [00:58:12] Peter Grom of UBS asked about how to think about the pacing of GM progression, given the $800 million of depletion that will be more back-half weighted, but healthy tailwinds from productivity and price. Andre Scholten CFO said that PG is on the path to recovering GM to pre-COVID levels, but it will take time. The company is also committed to investing in innovation and communication, which will require some operating margin expansion.

• [00:59:49] Filippo Falorni of Citi enquired about organic sales growth guidance for fiscal 2024, specifically volume assumptions and if volume growth is expected in the first half of the year. Andre Scholten CFO replied that PG expects 1 -1.5 points of global market growth to come from volume in fiscal 2024. The company will strive to grow ahead of that, and expects sequential progress on the volume line.

• [01:01:35] Chris Carey at Wells Fargo asked that with strong free cash flow generation and leverage trending down, if PG will increase share repurchases. Andre Scholten CFO said PG’s capital allocation priorities have not changed. The company will continue to fully fund the business, pay the dividend, do M&A where it makes sense, and return cash to shareholders through share repurchase.

• [01:01:50] Chris Carey from Wells Fargo asked for an update on the SK-II brand, including its channel health and whether it can continue to be a significant driver of growth for PG. Andre Scholten CFO answered that SK-II’s 20% growth in 4Q was built on a weak base, but the team is doing a good job of putting the brand on a solid footing for fiscal 2024. Early signs in China are positive.

• [01:06:38] Bill Chappell of Truist Securities asked about the disruption in the European grooming market and provide an update on the state of the grooming industry going into a normalized next 12 months. Andre Scholten CFO answered that the grooming business has been strong in recent quarters, and the company is optimistic about the future outlook. The business is expanding its product offerings and driving market growth.