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P&G Vice Chairman on earnings beat, inflation impact

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Yahoo Finance's Brian Sozzi speaks with P&G Vice Chairman Jon Moeller about the company's latest earnings report, price increases, outlook, and much more.

Video Transcript

BRIAN SOZZI: P&G is out with better than expected earnings this morning, but did warn the inflationary environment remains very challenging. I caught up with P&G Vice Chairman Jon Moeller and chatted about the company's outlook. Worth noting here-- Mueller will take over as P&G's CEO on November 1, succeeding David Taylor.

Earnings out-- better than expected here, sales up in each of your divisions. What's your read on the consumer right now?

JON MOELLER: Strong. We just had our 13th consecutive quarter of volume sales, consumption, and market share growth. Market growth rates across the world are reasonably strong, and certainly so in the US.

BRIAN SOZZI: Are you seeing any resistance by the US shopper to some of the price increases P&G has put through?

JON MOELLER: You know, our business model, which is innovation-based, seeks to build value for consumers through a combination of performance and value. And as a result of that, pricing is a normal part of our business rhythm. Pricing has been a positive contributor to our top-line for 44 of the last 47 quarters, for 16 of the last 17 years.

Having said that, the price increases that we've put into the market just recently have only been reflected on shelves for about a month. So it's a little bit early to tell. But I feel good based on the strength of the consumer, the strength of our offerings, and their superiority within their categories-- we have products available at different price points for consumers with different needs and a very, very strong innovation program supporting all of that.

BRIAN SOZZI: You've been at P&G, Jon, since 1988-- you've seen a lot of cycles. I'm not calling you old here, I'm just saying 1988 seems like a long time ago. Is this the worst inflationary backdrop you have ever seen?

JON MOELLER: If we just look at two components of cost, commodities and transportation, our current forecast is that will be a $2.2 billion after tax increase versus a year ago. We saw about a $600 million after tax increase in those costs in the quarter that we just completed. So it is a significant inflationary cycle.

As opposed to prior cycles, we're in a better place from a product superiority standpoint. We're in a much better place from a cost productivity standpoint. We've built those muscles over the last decade, and those should stand us in good stead as we work our way through the current situation. We see this as a rough patch from a bottom line standpoint for a period of time, but a patch that we should continue to grow through and invest walking forward to opportunities, not stepping back.

BRIAN SOZZI: You did lift your inflationary outlook-- as you mentioned, $2.2 billion, you were at $1.9 billion, if I'm correct. Where are you-- where is inflation surprising you?

JON MOELLER: It's pretty broad across the input spectrum. Again, just look at different commodities, whether it's commodities that are derived from the petrol complex, pulp, liner board, et cetera-- whether it's gasoline to fuel, transportation vehicles. If you look at commodities generally, they're up anywhere between 50% and 150% versus a year ago. And I can paint that story with a pretty broad brush.

BRIAN SOZZI: There were some, I believe, recent price increases P&G took in the baby care business this month. Are you looking at any more price increases, just given how quickly inflation is coming on here?

JON MOELLER: So we've previously announced price increases in baby care, feminine protection, adult incontinence, home care, and fabric care. We recently just released to the trade news of price increases in our grooming business, parts of our personal care business, and in our oral care business. So 9 out of 10 categories in the US have some form of price increase across part of the lineup.

BRIAN SOZZI: China is a big market for P&G, of course, Jon-- big there with Head and Shoulders. Have you seen any slowdown in growth in the China market? GDP does appear to be tailing off here.

JON MOELLER: If we look at [INAUDIBLE] within our categories, continues to grow-- up 6% to 7% per year. If you look at our results that are in line with that, up 12% on a two-year stacked basis. Our business in the last quarter was flat versus a year ago, but that has more to do with the timing of big events like double-11 and the inventory build into that than anything else. Fundamental consumption remains pretty strong and is one of our higher growth markets.

BRIAN SOZZI: I was joking around with you a little bit, Jon, before we came on-- I remember taping videos with you when I was essentially in a closet-- working out of a closet in another place and you were the CFO of the company. You've touched every position-- key leadership position of this company. You become P&G's CEO on November 1-- what is your biggest priority when you do take over officially?

JON MOELLER: Biggest priority is sustaining excellence. Again, I mentioned, this is the 13th consecutive quarter of volume sales consumption and market share growth. As part of that, supporting the team-- successful, multinational business is not an individual sport. It's a team sport. We have a fantastic team. They've done tremendous work through the pandemic, and I expect them to carry us through to the next chapter.

BRIAN SOZZI: Before I let you go, how important is ESG to you when you do take the helm of CEO? I found it very interesting that P&G is now going to be tying executive compensation to the progress it does make on ESG. I wish a lot of other executives were doing that out there. You know, how much of a focus is that inside the company?

JON MOELLER: It's been unfocused for a decade or more. All aspects, whether that's governance, or employee representation, and, obviously, environmental sustainability-- it's something our consumers care about, it's something our customers, our retail partners care about, something that our employees care very much about, and something we're committed to deliver on.