PG Procter and Gamble Co

By Sharon Terlep 

Procter & Gamble Co. is winning over shoppers with help from aggressive discounting that is rippling through the household-goods industry.

The maker of Tide detergent and Pampers diapers on Tuesday said average prices on its products fell in the most recent quarter for the first time since 2011. The discounting helped P&G boost sales in most of its business segments but has weighed on rivals.

The lower prices were one of several factors cited by Kimberly-Clark Corp., whose brands include Huggies diapers and Cottonelle toilet paper, as it unveiled Tuesday a sweeping restructuring amid weak sales.

The dynamics set up a tug-of-war this year between consumer-products companies, which are pouring money into new products and marketing in hopes of commanding higher prices, and retailers and shoppers who are becoming increasingly accustomed to discounts.

P&G has been under pressure from activist investor Trian Fund Management to improve its performance, and recently ended a high-profile proxy fight by giving Trian co-founder Nelson Peltz a seat on its board. Mr. Peltz has argued the company is overly complex and has failed to keep pace with recent trends.

On Tuesday, P&G's finance chief Jon Moeller said the lower prices won't be sticking around. He said P&G's moves are a response to industry trends, including discounts by rivals and a proliferation of cheaper private-label products. As they battle for shoppers, retailers such as Wal-Mart Stores Inc. and Amazon.com Inc. have been pushing lower prices and store brands.

"That's why in many ways we've chosen to focus our portfolio where we have, which is in categories where performance drives consumer choice," Mr. Moeller said in a call with analysts, several of whom pressed for information on pricing. "Our strategy is designed to find the best path to a better place."

Mr. Moeller said the company aims to combat price pressure with new offerings and by focusing on the higher end of the market, where products have richer margins and shoppers are more willing to spend. He pointed to a new Oral B power toothbrush and pricier new Olay skincare products as examples.

P&G said organic sales, a closely watched metric that strips out currency moves, acquisitions and divestitures, rose 2% in the quarter ended Dec. 31.

Lower prices had the biggest impact on P&G's grooming segment, where the company last year took the unusual step of publicly announcing plans to slash prices across the Gillette razor brand amid market share losses to cheaper online competitors. But pricing also fell by 1% on average in its healthcare, household goods and personal-care units.

Bernstein analyst Ali Dibaj questioned whether lower prices are a new reality for the industry, a particular concern for investors, he said, since prices on materials such as pulp and oil, have been going up.

"Arguably you have been pricing below your market inflation rates for years now," Mr. Dibaj said on the call with P&G. In the consumer-products industry, "pricing not keeping up with inflation seems to be a bit of a trend now. Is this retailers pushing back? Are consumers saying, 'These are commodities'?"

"You are right to point to this as a pain point in the immediate present, " said Mr. Moeller in response.

In recent quarters, the consumer giant has said it was puzzled by sluggish consumer spending on household staples such as paper towels and shampoo, and has been trying to spiff up its products spur sales.

In all for its fiscal second quarter, the Cincinnati-based company reported earnings of $2.5 billion, or 93 cents a share, down from a profit of $7.88 billion, or $2.88 a share, a year earlier. The prior year's quarter included a benefit from a divestiture. On an adjusted basis, earnings rose 10% to $1.19 per share.

Quarterly revenue rose 3.2% to $17.4 billion.

P&G's decision to streamline its beauty business by selling the bulk of it to Coty Inc. in 2016 helped organic sales in the segment to jump 9% -- the largest margin among company segments -- during the quarter.

P&G's shares fell 3% to $89.13 in morning trading. The stock has risen about 3% over the past 12 months, while the S&P 500 index has surged to a 25% gain.

Earlier in the day, Kimberly-Clark said it will cut about 13% of its global workforce, or at least 5,000 jobs, as the company grapples with sluggish sales of household staples.

The Irving, Texas-based company, which announced the job cuts as it reported fourth-quarter results, had entered 2017 predicting 2% organic sales growth but ended the year with flat sales. It expects just 1% growth for 2018.

Kimberly-Clark Chief Executive Tom Falk said in an interview that P&G's discounting, along with other factors such as women having fewer babies and pressure from retailers, is driving down prices across the industry.

However, he said, the competition hasn't reached the intensity of previous eras. "It's not the worst I've ever seen by far," he said, recalling a time in 1990s when P&G cut diaper prices by 10%. "There have been more aggressive price wars."

Imani Moise contributed to this article.

Write to Sharon Terlep at sharon.terlep@wsj.com

(END) Dow Jones Newswires

January 23, 2018 11:51 ET (16:51 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.