P&G CEO Jon Moeller on tariff impact: There will likely be price increases for consumers

Key Concepts:

• Organic Sales Growth
• Consumer Uncertainty
• China Market Performance (Baby Diapers, SK-II)
• Tit-for-Tat Tariffs
• Manufacturing Proximity to Consumption
• Tax Reform Act of 2017
• Capital Investment in US Manufacturing
• Dollar Strength
• Innovation and Demand Creation
• Pricing Strategies in Response to Tariffs
• Sourcing Options

1. Organic Sales Growth and Market Dynamics:

• The company's organic sales growth for the quarter was 1%.
• Past years saw growth as high as 3-5%.
• The US market has slowed from approximately 4% growth to 1%.
• Europe is experiencing a similar slowdown.
• This slowdown reflects consumer uncertainty.

2. China Market:

• China is the company's second-largest market in both sales and profits.
• Sequential improvement was seen, but it was modest.
• Last quarter saw a 3% decline, while this quarter saw a 2% decline.
• The baby diaper business is growing at double digits in a declining market (due to birth rates).
• SK-II, which had been a challenge, grew double digits in China during the quarter.
• The path forward in China is expected to be bumpy.

3. Impact of Tariffs:

• The company is still assessing the impact of potential tit-for-tat tariffs.
• They are working to understand the magnitude of the challenge and how to offset it.
• The company manufactures most products close to consumption, mitigating the issue's profundity.
• Kimberly-Clark mentioned Kleenex as an example of a product potentially affected by tariffs.

4. Investment in US Manufacturing:

• Since the Tax Reform Act of 2017, the company has invested $10 billion in capital manufacturing in the US.
• This investment was incentivized by lower tax rates.
• 6,000 additional people have been employed.
• The average starting wage has increased by 30%.
• The company pays more taxes to the US today ($2.2 billion) than before the reform ($1.6 billion).

5. Company Performance Since 2017:

• Global sales increased by $17 billion (85th percentile in the S&P 500).
• Profit increased by $5 billion (93rd percentile in the S&P 500).
• Market capitalization grew by $200 billion, exceeding competitors' growth over their histories.

6. Currency Impact:

• A strong dollar is meaningful.
• The impact of currency fluctuations is being considered in forecasting for the next fiscal year (starting in July).
• The priority is maintaining investment in innovation and demand creation.

7. Responding to Tariffs and Policy:

• The administration and the Hill have been open to dialogue.
• The company is exploring options to minimize the impact of tariffs on consumers.
• Pricing adjustments are likely, as tariffs are inherently inflationary.
• Sourcing options and portfolio choices are also being evaluated.
• The company's job is to optimize business outcomes within the policy landscape.

8. Potential Price Increases:

• Price increases for consumers are likely due to tariffs.
• The magnitude of these increases will vary by product.
• The timing of when these increases will appear on store shelves is uncertain.

Synthesis/Conclusion:

The company is navigating a complex environment characterized by slowing organic sales growth, uncertainty in key markets like China, and the potential impact of tariffs. They are focused on mitigating these challenges through strategic investments in US manufacturing, optimizing sourcing and pricing, and maintaining a commitment to innovation and demand creation. While price increases for consumers are likely, the company is actively working to minimize the impact and adapt to the evolving policy landscape.