By Aisha Al-Muslim
Procter & Gamble Co. snapped out of a long funk, booking its
strongest quarterly sales gains in five years on the back of
healthy global demand for bathroom staples like Head &
Shoulders shampoo and Gillette razors.
The gains were a signal that the consumer products giant may be
entering a period of more robust growth after a yearslong struggle
to adapt to rising competition, higher costs and a consumer shift
toward smaller brands. P&G's woes led to the costliest board
fight in history and promises by executives of dramatic changes,
but there were few signs that the moves were taking hold.
Investors cheered the results on Friday, sending P&G shares
up 8.3% to $87 -- its highest percentage gain in a decade. The
shares are still down on the year, having missed out on the broader
stock market rally.
The Cincinnati-based company reported sales increases across
most of its categories, including shaving razors, health care and
laundry detergent. P&G executives said the growth came from
increased demand in the U.S. and abroad, not the company's recent
decision to increase prices on some items.
Despite the strong start to its fiscal year, executives sought
to tamp down expectations and stuck with their full-year forecast
for organic sales to rise 2% to 3%. Jon Moeller, P&G's finance
chief, said he would refrain from calling it a "breakout
quarter."
The company is "certainly not sitting here today declaring
victory," Mr. Moeller said on a conference call with analysts.
"There's a lot of work and volatility ahead of us."
P&G said organic sales, a closely watched metric that strips
out currency moves, acquisitions and divestitures, rose 4% in the
fiscal first quarter. Beauty products -- with brands including
Pantene, Olay and Old Spice -- fueled the gains, rising 7%.
Overall, organic sales increased in nine of the company's 10 global
categories, Mr. Moeller said in an interview.
"Beauty had a very good quarter, but the story is not beauty,"
he said. "If you look at the difference between the prior quarters
and this quarter, the most defining difference was simply the
number of businesses that were growing, and that reflects the
implementation of our strategy."
The company has been working on productivity, making better
packaging and creating more products that solve consumers' problems
and are convenient, Mr. Moeller said. Some of the company's
fast-growing products in the quarter were Tide Pods detergent and
Always Discreet, an adult diaper targeted at women with sensitive
bladders launched in 2014, he said.
Mr. Moeller said the company raised prices in some emerging
markets to offset currency swings but that overall prices were
neutral in the September quarter. Shipment volumes rose 3% from a
year ago.
The company now estimates overall sales to be down 2% for the
full year due to foreign-exchange headwinds, compared with the
previous outlook of flat to up 1%.
In recent quarters, the company's organic sales have generally
risen 2% or less. They rose 1% in the fiscal year ended June 30,
below the company's goal of 2% to 3%.
After more than a year of trying to combat weak demand by
lowering prices, P&G recently changed course, saying it would
charge more for its Pampers, Bounty, Charmin and Puffs brands. The
increases, which the company said would take effect later this year
or in early 2019, have the potential to more broadly influence
pricing and demand given P&G's size and clout. P&G said
pricing overall was neutral during the quarter.
P&G posted a 4% gain in organic sales in its long troubled
grooming business, where Gillette has lost market share to online
upstarts like Dollar Shave Club. Grooming sales in the U.S. grew
10% in the quarter, though Mr. Moeller cautioned that the company
will still continue to face challenges in the business. The only
P&G segment that reported a decline in organic sales was the
baby business, which includes Pampers and Luvs diapers.
Consumer-products makers got a boost this week when Unilever PLC
and Nestlé SA said inflation in many markets allowed them to charge
more for their products, fueling stronger sales for those companies
in the latest quarter. Many consumer-goods makers in recent
quarters have struggled to raise prices amid weak inflation, but
commodity-price increases and a stronger U.S. dollar have changed
that.
P&G said profit rose 12% to $3.2 billion, or $1.22 cents a
share, in the first quarter, which ended Sept. 30. Core earnings
were $1.12 a share, beating the $1.09 a share analysts polled by
Refinitiv were looking for.
Net sales rose 0.2% to $16.69 billion.
The company's earnings were affected by unfavorable
foreign-exchange fluctuations due to the strengthening of the U.S.
dollar, which hurt sales by 3%.
P&G said price increases to offset foreign-exchange and
commodity pressures will begin to go into effect later in the
fiscal second quarter and pick up in the second half of the year.
The cost and foreign-exchange challenges "will persist and likely
worsen" as the company moves into the second quarter, Mr. Moeller
said.
The price increases may negatively affect overall consumption,
Mr. Moeller said. "We will simply have to adjust as we go on, as we
learn," he said.
The company also maintained its expectation for core
earnings-per-share growth of 3% to 8% for fiscal 2019, although Mr.
Moeller said the company isn't currently at the high end of this
range. The outlook includes an estimated $1.3 billion headwind from
foreign exchange and higher commodity costs, such as crude oil, as
well as higher transportation costs.
Write to Aisha Al-Muslim at aisha.al-muslim@wsj.com
(END) Dow Jones Newswires
October 19, 2018 15:58 ET (19:58 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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