If your looking for signs that the U.S. is not headed towards a recession, it's probably best to steer clear of Procter & Gamble's (PG) latest earnings release.
While the consumer goods company was able to top analysts' earnings and revenue expectations for the quarter, one of the big takeaways from the print is just how much money the company is losing on macroeconomic factors.
"We fully expect more volatility in costs, currencies, and consumer dynamics as we move through the fiscal year," said CFO Andre Schulten during the company's earnings call with reporters.
The company behind laundry products like Gain and Tide, and paper products like Bounty and Charmin, says that economic headwinds tied to inflation will lead to after tax chargers totaling $3.9 billion in fiscal 2023.
Raw and packaging material costs alone are expected to present a $2.4 billion headwind. Based on current exchange rates, P&G expects a $1.3 billion foreign exchange headwind. That's an incremental $400 million hit versus the company's initial outlook for the year.
The company also expects a $200 million charge related to rising freight and transportation costs.
Together that's equivalent to a $1.57 per share, or 27 percentage point, headwind to earnings per share growth for the year.
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Passing On Costs
Obviously, P&G's shareholders wouldn't be happy with the company taking all of that on the chin, so the company promised to offset those cost headwinds with price increases and "productivity savings."
Those price raises and productivity savings will help pay for the $9 billion in dividends and between $6 billion and $8 billion in common stock repurchases the company plans for the fiscal year.
"The macroeconomic and market-level consumer challenges we're facing are not unique to P&G and we weren't immune to the impacts. We've attempted to be realistic about these impacts in our guidance and transparent in our commentary," Schulten said.
The company says it has seen some reduction in consumer volume, as might be expected with price increases and inflationary pressure.
P&G expects to see volume keep contracting "by a point or two" this fiscal year due to consumer behavior around pantry inventory reduction and stretching out their purchasing cycles.
The company says it has seen consumers looking for value by moving their purchases into higher transaction sizes "to find lower-cost per-use or lower-cost per-unit," products.
P&G's First Quarter
Procter & Gamble shares were rising more than 2% Wednesday afternoon as the company reported earnings and revenue ahead of expectations, despite the inflationary headwinds.
P&G reported first quarter earnings of $1.57 per share on revenue of $20.61 billion. Analysts were expecting earnings of $1.54 per share on revenue of $20.28 billion.
Net sales rose 1% year over year, but unfavorable foreign exchange, thanks to a strong dollar, rates lowered revenue by 6%.
"We remain committed to our integrated strategies of a focused product portfolio, superiority, productivity, constructive disruption and an agile and accountable organization structure," CEO Jon Moeller said.
"These strategies have enabled us to build and sustain strong momentum. They remain the right strategies to navigate through the near-term challenges we’re facing and continue to deliver balanced growth and value creation.”
