Cleaning products boost P&G's profit by 234%, but it warns challenges lie ahead

P&G Earnings

While many companies were dealt a bad hand by the pandemic, Procter & Gamble (P&G) got a royal flush. The multi-brand conglomerate has reported annual revenue of $71bn (profit of $13bn) thanks to the demand for cleaning products during the coronavirus crisis and its ramped up marketing strategy.

“We built strong momentum heading into Covid-19 crisis and arguably built this further during the challenging second half of the year,” David Taylor, P&G's chairman, president and chief exec told investors. However, he warned: “We will continue to face significant challenges and perhaps a higher degree of uncertainty than any of us have ever faced."

The Drum unpacks P&G's end of year financials and what challenges lay ahead.

How has Covid-19 impacted P&G?

  • P&G has hit its strongest annual sales since 2006, with its profit up 234% year-on-year at $3.89bn.

  • Its organic sales grew 6% during Q4.

What areas of business performed well?

  • The largest growth was in P&G's fabric and home care unit, which saw a 14% sales gain (highest ever). Such brands include Tide and Mr Clean.

  • “We maximised the availability of products to help people and their families with their cleaning health and hygiene needs,” Taylor explained. “These products are more important than ever given the needs created by the current crisis, there's increased awareness of health and hygiene and additional time are all spending at home.”

  • Back in April, P&G ramped up its ad spend, citing the belief that it needed to retain "mental availability" of its brands in a time when their physical availability may be lacking. "We step-changed consumer communication, leveraging TV advertising which delivered an immediate lift for the fabric and home care unit by showing consumers more ways to use our products," Taylor stated. "These superiority investments have welded strong results."

  • P&G's US e-commerce business was up 50%. "Many people are developing new habits," John Chevalier, senior vice-president investor relations said on the performance of e-commerce during the crisis. "E-commerce shares are growing, but we want to be agnostic to where consumers buy the product. We know that's a spike driven by Covid-19, how much of that will sustain, we'll see."

What challenges lay ahead?

  • P&G predicts this exponential growth will teeter out, due to the uncertainty around the global economy and the ongoing pandemic, estimating growth of just 1% to 3%.

  • It says it welcomes its long-term prospects, but the near term will be challenging as it's difficult to predict.

  • "The reality is that Covid-19 cases are increasing in many parts of the world without the resources or infrastructure to effectively manage it will likely be operating without a vaccine or advanced therapeutics throughout Fiscal 21," Taylor warned.

  • He said this could prompt tighter containment policies and dramatically reduce mobility, which would affect employment and overall incomes. And in the US, Taylor claims it's unclear how long the country will be operating in double-digit unemployment levels.

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