By Juveria Tabassum and Alexander Marrow
Oct 22 (Reuters) - Procter & Gamble on Thursday warned that rising raw material, energy and freight costs would take a bigger bite out of annual profit, even as resilient demand for its beauty and home-care products helped first-quarter sales beat estimates.
The Tide detergent and Pantene shampoo maker now expects those costs to reduce fiscal 2027 profit by about $1.4 billion, up from its previous estimate of $1 billion.
Pressures from high commodity costs are
expected to increase over the next two quarters, P&G CFO Andre Schulten said on a call with the media.
P&Gās results offer an early test of whether resilient US consumer spending can withstand another bout of inflation, as higher fuel and food costs squeeze household budgets and push shoppers towards cheaper alternatives.
Commodity inflation has emerged as a growing concern across industries, from consumer goods giants to airlines, as volatility in oil prices following the US war on Iran drives up fuel and transportation costs.
While P&G topped quarterly estimates, it maintained its fiscal 2027 forecasts for organic sales growth of 1% to 3% and core earnings of roughly $7 per share.
"That is really a reflection of rising commodity prices in most companies, inability to continue to pass along increased input costs, which will likely cut into margins," said Art Hogan, chief market strategist at B. Riley Wealth.
HIGHER COSTS SQUEEZE MARGINS
P&G's core operating margin fell 80 basis points in the quarter ended September 30 despite 250 basis points of productivity savings, including efforts to streamline its supply chain under new CEO Shailesh Jejurikar.
Higher fuel prices have pushed up transportation and freight costs for packaged-goods companies, while a shortage of truck drivers on some routes has added to the pressure, a P&G spokesperson told Reuters.
US retail diesel prices hit a record $6 a gallon in September following the U.S. war in Iran and have remained elevated.
P&G is negotiating with suppliers and optimizing transportation routes to contain costs while continuing to invest in product innovation, the spokesperson said.
VOLUMES HOLD STEADY
First-quarter net sales rose 4% to $23.28 billion, beating analysts' estimates of $22.80 billion, according to data compiled by LSEG. Its shares rose about 2% in premarket trading.
Volumes increased in P&G's beauty business, helped by demand for higher-priced hair-care products as consumers continued to spend on self-care despite pressure on household budgets from higher fuel and food costs.
Overall volumes rose 2.4%, while prices increased about 0.4% in the three months through September.
Swiss packaged-goods maker Nestle also topped estimates for organic sales growth on Thursday, helped by stronger volumes.
The company reported first-quarter core earnings of $2 per share, above analysts' estimate of $1.88.
In August, P&G said it would buy supplements maker Thorne as it sought to tap growing demand for health and wellness products.
(Reporting by Juveria Tabassum in Bengaluru and Alexander Marrow in London; Editing by Anil D'Silva)
