Procter & Gamble (PG) has long been prized by investors for its ability to raise prices and retain customers — even in a weakening economy. But two new reports call into question the consumer giant’s so-called recession-resistant qualities — at a time of slowing economic growth but also decades-high inflation. Analysts at Well Fargo said in a research note Tuesday there’s a growing debate on whether P & G can meet its fiscal year 2023 targets amid slower consumer demand. According to a Wall Street Journal article Sunday, consumers are trading down premium detergents for cheaper brands. P & G has been able to maintain momentum as one of the top consumer brands so far. But as consumers tighten their budgets and shift their preferences to less-expensive alternatives, it’s important to consider how this dynamic could impact Procter & Gamble’s long-term growth prospects. What the reports say Wells Fargo said the answer whether P & G will meet fiscal 2023 targets appears to be “yes,” but analysts there are trimming full-year earnings-per-share estimates by 2 cents to $5.88. When reporting its latest quarter, P & G said back in July that it expected EPS for 2023 to be $5.93 on organic sales growth in the range of 3% to 5%. Analysts see slower growth in the short-term when comparing P & G to peers — but since we’re still in the beginning of the fiscal year, they maintain longer term growth. “PG growth is slowing on significant comps but two-/three-year stack trends are still strong” the Wells Fargo note said. In its fiscal year 2022 shareholder letter , Procter & Gamble said it was able to deliver strong performance in difficult operating conditions: “Organic sales growth of 7% continues our strong top-line momentum, which is up 13% on a two-year stack (across fiscal years 2021 and 2022) and up 19% on a three-year stack (across fiscal years 2020, 2021 and 2022).” In recent quarters, P & G had organic sales growth of 10% in its fiscal third quarter and 7% in its fourth quarter. Wells Fargo estimates organic sales growth of 5% in Q1. The Journal article also highlights that while less-expensive detergent brands are gaining some traction, some consumers may not be willing to trade down because of their concerns of lower quality. In some cases, according to the report, consumers are switching over to more expensive detergent pods. We think this shows that P & G’s products have an edge compared to its competitors. Bottom line With a slowdown in retail, we own Procter & Gamble for its recession-resistant qualities. While demand is decreasing in the overall economy, consumers are still going to spend on things like detergent, toothpaste and shampoo even as prices in the economy rise. However, Wells Fargo’s fiscal 2023 EPS trim and the Wall Street Journal report about slowing sales of premium laundry detergent versus flat-to-growing sales of cheaper alternatives are not what we like to see. A couple of things to consider: We think what could provide support to P & G are a decline in its commodity costs and any future weakness in the recently strong dollar. As a multinational in price-sensitive categories, P & G is always vulnerable to foreign exchange fluctuations, and the cost of making and shipping goods has been higher for most companies. We currently have P & G rated a 1 , meaning we see it as a buying opportunity at current prices. However, P & G is scheduled to speak at a Barclay’s conference on Thursday. We’ll be listening closely to what management has to say about recent trends and future expectations before making our next move for the Club. The consumer goods giant specializes in household products, consumer goods and personal care items with notable brands including Tide, Crest, CoverGirl, Pampers and Secret. P & G’s brand superiority creates consumer loyalty. These products are on the higher quality-end in its categories, allowing the company to sell its products at higher price points and supporting supports its gross margin expansion. For example , in its baby products, P & G has developed offerings at different price tiers to accommodate customers who might be seeking more affordable options. The company’s portfolio of Baby Care products supported high single-digit organic sales growth globally in fiscal 2022 in P & G’s Baby Care category, according to the company. This offering allows the retailer to adapt to changing consumer needs. (Jim Cramer’s Charitable Trust is long PG. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
