Revamped P&G Shows Improvement

It's working, sort of. Procter & Gamble reported a boost in second-quarter profit that topped expectations as higher pricing and lower costs offset a decline in sales.


The world's largest consumer products maker has been trying to refocus its efforts on core brands by slimming down its offerings and cutting costs. The measures, meant to help the company regain its standing as a top competitor, helped push closely watched organic sales higher by 2%.


The world's largest consumer products maker reported a 35% boost in profit to $3.21 billion, or $1.12 per share. Earnings, adjusted to account for discontinued operations, were $1.04 per share.


The results beat Wall Street expectations. The average estimate of 11 analysts surveyed by Zacks Investment Research was for earnings of 98 cents per share.

 

The maker of Pantene shampoo, Crest toothpaste and Tide laundry detergent reported a 9% drop in revenue to $16.92 billion as a stronger US dollar cut into product sales. The results fell short of Street forecasts. Eight analysts surveyed by Zacks expected $16.96 billion.

 

But, product costs fell 11% to just under $8.5 billion while general expenses fell 14% to $4.6 billion, helping to offset the revenue decline, according to the company.

 

Looking ahead, the Cincinnati-based company expects revenue to decline in 2016 because of a stronger dollar and brand divestments. But, it expects organic sales, which excludes foreign currency swings, to rise.

 

Shares of P&G rose $1.15 to $78 in premarket trading. P&G shares have fallen 3% since the beginning of the year, while the Standard & Poor's 500 index has declined 8%. The stock has dropped 15% in the last 12 months.

Sales growth in each business segment benefited, to varying degrees, from price increases taken with new product innovations and/or to offset the impact of currency devaluation in markets such as Russia, Brazil and Mexico. Volume growth was negatively affected by retailer actions to manage inventory levels relative to consumption trends in the markets most affected by currency devaluation and in markets where we have recently adjusted trade terms in certain sales channels.


Here's a look at how P&G's business segments performed during the period:


• Beauty segment organic sales increased 1% as a positive 4% impact from pricing was partially offset by a 3% impact from lower organic volume. Organic sales increases in personal care and the super-premium SK-II skin care brand were partially offset by organic sales declines of the Olay brand.

• Grooming segment organic sales increased 3% as higher pricing in shave care and growth on Braun from innovation more than offset lower volume. Organic sales increased globally in shave care and in Braun in developed markets.

• Health Care segment organic sales increased 3% as favorable geographic mix and higher pricing in both oral care and personal health care were partially offset by lower volume. Organic sales growth was driven by oral care in developed markets, particularly power toothbrushes, and personal health care in developing markets.

• Fabric care and home care segment organic sales increased 2% versus year ago on pricing benefits and favorable mix while organic volume was unchanged. Both home care and fabric care delivered strong growth in developed markets. This growth was partially offset by a decline in fabric care in developing markets.

• Baby, feminine and family care segment organic sales were unchanged versus year ago as pricing benefits were offset by lower organic volume. Baby care organic sales declined as the growth of Pampers in North America was more than offset by declines in other regions. Feminine care organic sales increased due to growth in developed markets from innovation and in developing markets due to pricing. Family care organic sales were unchanged as increases in North America were offset by strategic distribution decreases in Mexico.