(Bloomberg) -- Procter & Gamble Co. sank on Friday after the maker of Pampers diapers and Dawn dish soap reported quarterly sales that fell short of Wall Street estimates, overshadowing an improved profit outlook. 

Organic sales, which strip out the impact of acquisitions, divestitures and foreign-exchange impacts, increased 3% in the quarter ended March 31, below the 3.7% that that analysts had projected. Shipment volumes were little changed from a year earlier.

“We have headwinds,” Chief Financial Officer Andre Schulten said in an interview. He listed currency volatility, ongoing weakness in China and the company’s SK-II beauty brand as challenges.

P&G shares fell 0.8% at 10:39 a.m. in New York trading Friday. The stock had advanced 7.3% this year through Thursday’s close, outpacing the 5.1% gain of the S&P 500 Index.

P&G’s results for the fiscal third quarter show that shoppers are still spending more for their essential goods. The company is on track to boost its prices for a sixth consecutive year, and that’s helping the bottom line: It now sees earnings, excluding some items, in a range of $6.49 to $6.55 a share in the current fiscal year — an increase of 12 cents from the previous forecast and above analysts’ average estimate. 

This has come at the cost of lower volume growth, however. In North America, where P&G gets half of its revenue, third-quarter volume rose 3%, slightly below the prior quarter’s 4%. Organic sales are expected to be up 4% to 5% in the current quarter, Schulten said during a conference call.

Gross margin, a gauge of profitability, came in above estimates for the quarter. The company said its costs have fallen in part due to curtailed overtime at production lines and shifts to lower-cost ingredients. Still, higher oil and diesel costs, along with pulp prices, may hurt results in the current quarter, Schulten said.

Impact of Conflict

Schulten said consumer behavior is “really stable.” He added that “the supply situation on the commodity side has eased after Covid.” Still, geopolitical conflict has led to softer demand in certain regions, he said.

“The impact is really limited to a few markets where the tensions are leading retailers to be a little hesitant to promote and merchandise heavily,” Schulten said during a media briefing on Friday. He named Turkey, the Middle East and Indonesia as seeing weaker demand. 

P&G posted higher-than-expected sales growth in its grooming division, which includes Gillette razors, citing higher prices in Europe and Latin America. Schulten said that business has been bolstered by total body shaving and intimate hair removal products, which P&G has targeted with shaving gels and Braun electric shavers for both men and women. 

The company’s fabric-care business, which sells Tide detergent, also outperformed last quarter. Its health care and baby products divisions, however, came under pressure, with volumes dropping in both categories, the maker of Puffs said.

P&G has struggled to expand sales in China, where it sells SK-II beauty products, amid weak consumer confidence. “The consumer is still a little bit shaken,” Schulten said of China. “I think the market is coming back slowly. Will it be bumpy in the future? Yes, it won’t be a straight line.”

P&G had a “mixed quarter” but the company can “return to more balanced organic growth in a more profitable way,” RBC Capital Markets analyst Nik Modi said in a note. “P&G remains one of the best-positioned CPG companies to deal with the volatility that has come to define the past few years and most likely the next few years.”

(Updates with shares in fourth paragraph, fourth-quarter forecast in sixth paragraph, commodity costs in seventh paragraph.)

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