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P&G misses on earnings, cites still-rising costs

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Yahoo Finance Live anchors break down second-quarter earnings for Procter & Gamble.

Video Transcript

BRAD SMITH: We also got to talk about consumer packaged goods brands adjusting their tactics as inflation and the looming economic outlook bear down. And here's a couple of the companies that actually reported earnings here this morning. P&G, you're seeing shares down right now by about 4.8%. Church & Dwight, of course, Arm & Hammer, you're seeing that down by about 7.2%. And Colgate-Palmolive here.

We can perhaps begin things with P&G as well here because for what we're looking at within this broader trade-down, where a lot of the consumers, even for the brands that are P&G or Colgate-Palmolive and Arm & Hammer, Dwight & Hammer, all of those, in a trade-down environment, are going to look towards-- those consumers are going to be looking towards some of the in-house brands that a Walmart or a Target might have that are easily producible and that, ultimately, they're just going to see consumers, at least, a better or lower price on right now.

BRIAN SOZZI: Yeah, and we'll have more on this in the next hour. I talked to P&G's CEO Jon Moeller, and he said, yes, we are seeing consumers use private label goods or shift. Is it an aggressive shift? Unclear, but that is very clear in the data, Nielsen tracking data, and also, I would say somewhat clear in P&G's results. But look, it is not normal you see a P&G, at least going back the past 2 and 1/2 years, miss by any stretch on sales or earnings. A $0.02 beat-- a miss here on earnings for P&G is significant.

And it's not just also some of the trade-down or consumers balking at the higher prices. It's still inflation. For over the next 12 months, for their next fiscal year, they're looking for about $3.3 billion after tax hit from FX and various inflation. That is huge. That is-- I believe they mentioned $1.23 per share. That is otherwise, in a normal scenario, more than $1 in earnings that would get flowed through to your bottom line and probably help the stock price.

JULIE HYMAN: Yeah, and even if they're raising prices, they're not-- they can't, I guess, raise them enough to keep up with that. And this also speaks-- we were asking six months ago, when will consumers balk at the higher prices? And we are starting to see the bulking. It's happening, right?

BRIAN SOZZI: Into the second quarter. That's when it really happened. Some-- I would say the last two weeks in June, something happened, and consumers really started to shift. I'm on a lot of these earnings calls, and that second and third week in June were bad.

JULIE HYMAN: Well, I wonder, too, if people started to see gasoline prices come down. And they said, OK, we got some relief there. Where's the rest-- like, where's the rest of it? We're kind of--

BRIAN SOZZI: They're trapped.

JULIE HYMAN: Yeah.

BRIAN SOZZI: Can't go anywhere.

BRAD SMITH: But the second week in June, that also correlates with the beginning of summer as well. And a lot of that spending, if it's shifting towards some of the services, or that spending for services is already baked into households, then you're also looking at an environment where they're saying, look, I'll trade down because I'm probably just spending at the Walmart that's at the vacation destination that I'm going to or on some other measure in order to kind of curb my own costs when I am out experiencing the experience economy or out on vacation and whatnot. And so that's perhaps that timing correlation that could have been at play in this most recent quarter, too.

BRIAN SOZZI: But trading down is not what it used to be.

BRAD SMITH: No.

BRIAN SOZZI: This view that you can go out and find $1 razors and shave your face, that's not what's out there. I mean, the prices are just a little bit less than the name brands. But overall, they're still very high.

JULIE HYMAN: They are very high. And I recently bought a generic razor.

BRIAN SOZZI: Don't tell me for a dollar.

JULIE HYMAN: No, not for a dollar.