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Procter & Gamble, the consumer goods giant, has reported a surprising drop in sales in the fourth quarter, despite efforts to rein in price increases. The company's shares fell more than 6 percent Tuesday after the disappointing results.

P&G tried to offset years of sharp price increases by offering discounts and promotions. However, this strategy failed to convince consumers who remained price-conscious. The company's more expensive products, such as Charmin toilet paper and Pampers diapers, saw a decline in demand.

Rivals like Nestlé and Unilever also disappointing results

P&G is not the only one struggling. Rivals such as Nestlé and Unilever also reported first-half sales growth below expectations. PepsiCo missed sales expectations earlier in July, citing financial pressures on consumers.

Don Nesbitt, senior portfolio manager at F/m Investments, noted that there is a "gap in the consumer sector" and that it is becoming more difficult to pass on price increases. Consumers are becoming more discerning in their purchases, especially those with lower incomes.

New products to entice budget-conscious shoppers

P&G has invested heavily in new products, such as tile Tide Evo laundry detergent and Luvs Platinum Protection diapers, which offer cheaper and more environmentally friendly options. However, supply problems have delayed the launch of the new Luvs, causing sales to fall.

The company's main diaper business saw a decline due to the loss of market share to competitors. P&G increased promotions and offered discounts, which resulted in lower prices for some products and took a toll on organic sales of its largest division, textiles and home care.

Leadership remains optimistic

Despite the disappointing results, P&G executives remain optimistic about the company's future. CEO Jon Moeller believes that as consumers begin to show more financial hardship, people will be more inclined to buy P&G products, such as Tide laundry detergent and rolls of toilet paper.

The company reported a 1 percent increase in total volumes, driven by growth in its personal care products and health division. Net sales fell to $20.53 billion, falling short of expectations of $20.74 billion.

Challenges abound

P&G also faces challenges in China, where consumer boycotts of Japanese beauty brand SK-II continue to hurt results. The company's beauty business saw volumes fall 1 percent. Executives noted that sentiment in China has not improved over the past six months.

The company also sees continued boycotts of Western brands in the Middle East. However, P&G expects to buy back between $6 billion and $7 billion of common stock in fiscal 2025 and expects core earnings to rise between $6.91 and $7.05 per share in the same period.

P&G's CEO expressed confidence that the company will continue to grow, citing opportunities in the nursing and health divisions. Adjusted earnings of $1.40 per share beat estimates of $1.37, mainly due to lower raw material costs.

Key takeaways

- P&G reported a surprise revenue decline in the fourth quarter despite efforts to rein in price increases.
- Rivals such as Nestle and Unilever also reported disappointing results.
- The company's higher-priced products saw a drop in demand as consumers remained price-conscious.

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