By Ananya Mariam Rajesh and Jessica DiNapoli
(Reuters) -Procter & Gamble posted a surprise drop in fourth-quarter sales, as the company's efforts to reel in years of steep price hikes failed to win over price-conscious consumers who snubbed the company's pricier Charmin toilet paper and Pampers diapers.
P&G shares fell more than 6% in trading on Tuesday.
The company's rivals, including Nestle and Unilever, also reported first-half sales growth below expectations. PepsiCo missed sales expectations earlier in July, with executives saying that consumers of all incomes were feeling squeezed financially.
"(There is) a hole in the consumer sector ... it is getting more difficult to pass on price increases," said Don Nesbitt, senior portfolio manager at F/m Investments, which has a stake in P&G.
"The consumer is becoming more discerning on their purchases, especially the lower-end consumer," he said.
P&G has been spending heavily to launch new products across its laundry business, including its Tide Evo detergent tile, and lower-cost Luvs Platinum Protection diapers, aiming to woo customers looking for cheaper and more environmentally friendly options.
Executives said supply constraints delayed the introduction of the new Luvs. P&G's key diaper business saw sales declines because it lost market share to competitors.
The company has been increasing promotions and offering discounts, resulting in lower prices for some of its products and taking a toll on organic or self-generated sales at its largest division, fabric and home care, which includes Tide detergent.
"P&G's sales (figures) support the theme that you can only push price so far until consumers push back," said Brian Jacobsen, chief economist at Annex Wealth Management.
"If they use promotions and discounts to get the attention of consumers, that could help volumes, but that comes at a price."
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Executives, however, said on a call with Wall Street analysts that they were not seeing significant financial pressure among consumers, who they said continued to purchase more expensive P&G products, moving from diapers with taped sides to pull-ups, or single-use detergents to larger sizes, as examples.
CEO Jon Moeller said on the call that P&G stands to benefit if consumers start showing more financial distress because people will be at home more often, hand-washing dishes and using more toilet paper rolls.
P&G reported a 1% rise in overall volumes in its fourth quarter ended June 30, driven by growth in its grooming business, which includes Venus razors, and health care division featuring brands such as fiber supplement Metamucil. The average price also rose 1%, compared with a 7% jump a year ago.
Net sales slipped to $20.53 billion and missed an average expectation of $20.74 billion among analysts polled by LSEG.
P&G has also been hit by weak spending in China, even for daily-use items. Consumer boycotts of its flagship, pricey Japanese beauty brand SK-II continued to hurt results from the country, P&G's second-largest market.
Volumes in P&G's beauty business, which includes SK-II, fell 1%. Executives, however, said the "core" of the business, which includes cheaper shampoos like Head & Shoulders and Pantene, and mainstream skincare brand Olay, is continuing to grow.
Executives on a conference call with investors said sentiment had not improved in China over the last roughly six months.
P&G is also seeing continuing boycotts of Western brands in the Middle East.
The company's adjusted profit of $1.40 per share beat estimates of $1.37, mainly due to lower commodity costs. The company said it expects to repurchase between $6 billion and $7 billion of common shares in fiscal 2025.
It expects fiscal 2025 core profit to rise between $6.91 and $7.05 per share, compared with analysts' expectations of $6.97, and annual sales growth in a range of 2% to 4%, compared with estimates of a 3.04% rise.
(Reporting by Ananya Mariam Rajesh in Bengaluru and Jessica DiNapoli in New York; Editing by Arun Koyyur, David Holmes and David Evans)
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