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Procter & Gamble warns of price hikes, Vaccine sales boost Johnson & Johnson earnings

Yahoo Finance's Julie Hyman, Brian Sozzi and Brian Cheung break down Procter & Gamble and Johnson & Johnson latest financial results.

Video transcript

- First, we got to talk about those Procter Gamble numbers this morning. The company coming out. As you can see there with earnings and sales that beat estimates.

The gross margin though missed estimates and the company came in and said expenses are going to be higher than it expected this year. Brian Sozzi, you've really been laser focused on these numbers, as well as on this question of costs going up. And we definitely got some more insight through this report.

- Super laser focus there Julie and Brian. And recently, I just want to note here P&G shares have shot up to the second most important or trafficked ticker page on the Finance platform just now. That does not normally happen. Even on earnings day for P&G.

But I think why you're seeing the stock sell off here really gross profit margins for the company. Soi 350 basis point hit because of higher commodities. Prices here. The company raised its inflationary outlook.

And I put all these questions on inflation and price increases to P&G's vise chairman John Mueller. He will be CEO officially on November 1. But I asked him about inflation. Here's what he said.

- Pricing is a normal part of our business rhythm. Pricing has been a positive contributor to our top line for 40 for the last 47 quarters for 16 out of the last 17 years. Having said that, the price increases that we've put into the market just recently have only been reflected on shelf for about a month. So it's a little bit early to tell.

But I feel good based on the strength of the consumer, the strength of our offerings, and their superiority within their categories. We have products available at different price points for consumers with different needs and a very, very strong innovation program supporting all of that.

- I dive deeper into the quarter from P&G with the piece now on the Yahoo Finance platform. Mueller telling me that he's seeing a quote, significant inflationary cycle, which raises the question I think. Will P&G take even more price increases over the past 12 months? They've taken a series of them across their business.

Some new price increases just went into effect this month. d but by and large here, I know the market doesn't like this quarter. But still sales up in every business segment for P&G. And volumes were up in all business segments, except the beauty business despite those price increases.

So by and large, it looks like as we approach this continue these consumer goods earnings reports, you want to see how the consumer is handling these price increases. Just looking through the lens of P&G seems to be so far so good.

- Yeah. And so it looks like it's going to be a red morning for Procter Gamble shares market down over 2%. But we'll call my eye in the earnings release was really the guidance aspect, where they said they expect an additional 200 million of after tax costs from higher freight costs.

And I guess that kind of folds into the broader story on inflation for this company. You were talking about the materials side of things. But obviously, just the transportation logistics as we know from even the port closures and everything else at the White House has been watching remains an issue for these types of companies, who really have tried to avoid price increases for as long as they can.

So I guess in your conversation with the vise chairman, there any other kind of detail. I mean, we heard in that clip that we just played that he's trying to maybe, you know, punt until the next quarter to actually see the impact of any price raises that they implemented during the quarter. But anything else that tells you really how substantial, how persistent, how not transitory maybe some of these pressures are based off of that conversation size.

- It's definitely not transitory, Brian. And I'm not sure a Federal Reserve rate hike will impact Procter & Gamble in terms of the inflation it's seeing. But look, you could just look right in their outlook.

They came out on the earnings release today said they see a $2.1 billion hit to their results for their current fiscal year because of higher commodities. Prices are just higher inflation is another way to say it.

Three months ago, they were looking for a $1.9 billion hit from inflation over, over the next 12 months here. So the inflationary environment at least for P&G continues to surprise them to the upside.

And I would expect more commentary like this from the likes of a Kimberly-Clark. When they report soon a Coca-Cola. When they report soon. And let's keep in mind PepsiCo a couple of weeks ago.

When they reported earnings, they teed us up to hear commentary like this in their own report.

- Yeah, definitely. Let's talk Johnson & Johnson now. That company coming out with third quarter numbers that beat estimates. And they also raised their profit forecasts for the full year. So now they're looking for 977 to 982 in earnings per share.

Ahead of their previous forecast, you can see their sales coming in a little light of estimates earnings per share beating estimates. And if you look at their various units here, drug sales up 14%, medical devices up 8%, consumer health up more than 5%. And the COVID vaccine $500 million is what came into the company during the quarter. That was below estimates.

But the CFO of the company Joe Woke, who we're going to be speaking to later in the program basically says, you know, he doesn't think necessarily. The stock should trade on vaccine news because he says it's essentially a break even item for the company because they do provide a lot of it at cost when they're giving the vaccine out there.

Brian Sozzi, what stands out to you in these J&J numbers?

- So that to me is really, I think this quarter from Jay and Jay validates the very strong report. We heard last week from a Walgreens. And what we might hear from a CVS very soon when they report, looking right at consumer health.

The consumer health business for J&J. And a lot of focus is always on the COVID vaccine business for them as it should be. But still you look at the consumer health business sales up 5.7% on an adjusted basis in the most recent quarter driven by Tylenol, Motrin, and Aveeno skin health and beauty products, beauty products.

We can share area for P&G. But still a good business for them. Overall, you get the sense that this could be a pretty good flu season for the pharmacy space and certainly for J&J.