PG Procter and Gamble Co

Consumer company takes $8 billion charge to write down value of Gillette razor business

By Sharon Terlep and Aisha Al-Muslim 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 31, 2019).

Procter & Gamble Co. reported its highest quarterly sales growth in more than a decade, riding strong consumer spending on household staples from toothpaste to laundry detergent even as the company continued to raise prices.

The strong quarterly sales were marred by an $8 billion charge the Cincinnati-based company took to write down the value of the Gillette razor business it acquired 14 years ago. The charge is a reminder of the challenges facing big brands amid shifting consumer habits and new online entrants.

After years of trying to stoke demand by cutting prices, P&G and most of its rivals switched course about a year ago and have been pushing up prices across a range of products. The moves have paid off as consumers have been willing to absorb the increases, some of which were prompted by higher costs and have padded profits.

The maker of Tide detergent and Pampers diapers said Tuesday organic sales -- which strip out currency moves, acquisitions and divestitures -- rose 7% in the quarter. About half the gains came from higher prices. The company posted the strongest organic-sales gains in its beauty and health-care businesses.

P&G's results for the fiscal year that ended June 30 mark the biggest sales gain since the 2008 U.S. recession. Finance chief Jon Moeller said the results demonstrate that P&G's turnaround effort, from slashing brands and jobs to streamlining the organizational structure, is working.

"We built momentum on sales, share and margin as the year progressed," Mr. Moeller said on a call Tuesday with reporters.

P&G was buoyed by a strong overall market both in the U.S. and in emerging markets, despite concerns about the global economy and trade tensions. Rivals Kimberly-Clark Corp. and Colgate-Palmolive Co. also reported solid quarterly results, though they didn't match P&G's performance.

P&G shares were up 4.3% at $121 on Tuesday afternoon. Shares are up about 51% in the past year.

For the fourth quarter, the company posted a net loss of $5.24 billion, or $2.12 a share, down from a profit of $1.89 billion, or 72 cents a share, a year earlier. The results were weighed down by the Gillette charge, which reduced earnings by $3.02 a share.

Gillette started slashing prices in 2017 in hopes of stopping defections of its U.S. customers to online startups such as Dollar Shave Club and Harry's that sell lower-priced razors and blades. The move helped but the brand has remained a stubborn weak spot for P&G, which bought Gillette for $57 billion in 2005.

The company has acknowledged that it erred with a singular focus on creating more sophisticated razors with higher and higher prices, opening the door to lower-priced rivals.

Although competition has increased and men are shaving less, the business "continues to be a strategic business with attractive earnings, cash flow and growth opportunities" the company said.

During the quarter, ended June 30, P&G's net sales rose 4% to $17.09 billion, above the consensus forecast of $16.86 billion from analysts polled by FactSet. Unfavorable foreign exchange hurt sales by 4%, the company said.

For fiscal 2020, the company predicted net sales growth of 3% to 4% and organic sales growth of 3% to 4%. Core earnings per share are expected to increase 4% to 9% for fiscal 2020, compared with $4.52 in fiscal 2019.

Write to Sharon Terlep at sharon.terlep@wsj.com and Aisha Al-Muslim at aisha.al-muslim@wsj.com

(END) Dow Jones Newswires

July 31, 2019 02:47 ET (06:47 GMT)

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