Procter and Gamble (PG) today reported an 18% drop in net income, driven by weak top-line results. The period ended June 30th marked the end of P&G's fiscal year; 12 months that brought successively weaker performances across all business segments. Obviously P&G has weathered the storm better than most, and individuals I know who have transacted business with the Company have only positive comments to make about management.
Procter and Gamble's results represent the most insightful window into consumer's spending proclivities, specifically with regards to those things that every household must purchase, i.e detergent and soap etc. Two months ago, I argued on SeekingAlpha that P&G's fiscal third quarter results were somewhat inflated due to lower interest expense and the Folgers divestiture, and that Q4 could bring with it some disappointing results. This position was generally derided by those with a myopic understanding of P&G and consumer behavior, who couldn't conceive of a weak quarter from a soap/detergent/diaper selling Company. As the chart above indicates however, P&G's sales weakened as the year went on; sales of baby care products were the only area that held up year to year, and Q4 ushered in an across the board decline in sales.
Perhaps, as some are suggesting, growth from China and other developing countries will offset the American consumer's retreat, and pave the way for sales growth going forward. On the other hand, the "emerging market growth will offset weak domestic demand" argument seems a bit on the convenient side, as the ultimate purpose behind such a line of reasoning is to justify higher equity valuations. After all, in a country as optimistic as America, who wants to believe that the recent stock market celebration has overshot anything based in reality?
Disclosure: No position in PG