Procter & Gamble Puzzled by Decreased Consumer Spending -- Update
October 20 2017 - 11:34AM
Dow Jones News
By Sharon Terlep and Allison Prang
U.S. shoppers continue to cut back spending on household goods
from paper towels to diapers, depressing sales at Procter &
Gamble Co., and the consumer giant would like to know why.
The maker of Tide and Pampers reported another quarter of
sluggish growth Friday. Fresh off an apparent victory over activist
investor Nelson Peltz, P&G is under pressure to show it can
bolster sales.
The company's organic sales, a closely watched metric that
strips out currency moves, acquisitions and divestitures, rose 1%
in the quarter, the increase almost entirely driven by emerging
markets outside the U.S.
"We've been unable to put our finger on why this has been,"
Chief Financial Officer Jon Moeller said in a call with investors.
Shoppers continue to consume at the same levels but are spending
less on staples. "I've heard theories but nothing to explain the
broad slowdown."
P&G said global spending on consumer staples, already tepid
in 2017, has slowed even more. The company estimated global
industry growth at about 2.3% for the quarter, down from 2.5% the
previous period. U.S. growth was essentially flat, the company
said.
This week, fellow consumer-products company Unilever PLC also
reported weaker-than-expected sales, while Reckitt Benckiser Group,
maker of Lysol cleaner and Durex condoms, said it would split its
business into two divisions.
Neither gains by lower-cost private-label products nor consumers
switching to less-pricey brands accounts for the U.S. spending
decline, Mr. Moeller said.
He discounted two other theories behind the slowdown: that
Hispanic shoppers are spending less amid concerns over Trump
administration immigration policies and that consumers have shifted
spending to services. P&G data shows no particular slowdown in
markets with a large Hispanic population, Mr. Moeller said, "and
the idea that, 'I want a cellphone so I'm not going to wash my
hair,' doesn't make sense to me."
Price cuts driven by retailers as they battle each other and
online rivals may in part account for the decreased spending, he
said.
P&G said its fiscal first-quarter profit rose 5% as China,
once a weak spot, now is driving growth. To highlight the
turnaround there, Mr. Moeller hosted the analysts' call from
P&G's Guangzhou office. Two years ago, P&G CEO David Taylor
said publicly that the company lost its footing there. P&G's
organic sales in the country rose 8% in the recently ended
quarter.
Shares in P&G, up 5.5% over the past year, declined 3.2% to
$88.63 in morning trading.
The results come as Mr. Peltz narrowly missed obtaining a seat
on P&G's board last week, according to a preliminary vote
tally. At least $60 million was spent on the proxy fight -- which
the Trian Partners chief executive says isn't over yet -- making it
the priciest in U.S. history. Trian declined to comment on
P&G's first-quarter results Friday.
The company's profit rose to $2.85 billion, or $1.06 a share,
from $2.71 billion, or 96 cents a share. Total sales rose to $16.65
billion from $16.52 billion.
The company expects sales to grow 2% to 3% in the current fiscal
year, which ends in June, unchanged from the previous forecast.
P&G's sales growth in the first quarter was helped by
segments related to beauty; fabric and home care; and health care.
Net sales in the grooming segment, as well as baby, feminine and
family care, each fell.
Write to Sharon Terlep at sharon.terlep@wsj.com and Allison
Prang at allison.prang@wsj.com
(END) Dow Jones Newswires
October 20, 2017 11:19 ET (15:19 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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