Cost Cuts Boost P&G

Procter & Gamble's fiscal third quarter earnings topped analysts' estimates, even as sasles fell due to weakness in grooming and beauty categories and a strong dollar. For the three months ended March 31, the company  earned $2.75 billion, or 97 cents per share. A year earlier it earned $2.15 billion, or 75 cents per share. Revenue slipped to $15.78 billion from $16.93 billion, hindered by a strong dollar, minor brand divestitures and the Venezuela deconsolidation. The performance was below the $15.81 billion that Wall Street forecast. The biggest sales decline came in the grooming category, which was down 10%. Beauty and family care sales both declined 8%. Health care sales fell 7%.

“We continue to make progress on the transformations we are undertaking to return P&G to balanced top and bottom-line growth and maintain strong cash generation,” said President and Chief Executive Officer David Taylor. “We achieved a significant milestone this quarter in the transformation of the product portfolio with the sale of the Duracell business. We delivered another strong quarter of productivity improvement and cost savings, and we increased investments in innovation, advertising and selling to enhance our long-term prospects for faster, sustainable top-line growth and value creation.”    

Sales in four of the five business segments benefited 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 declined in four of the five business segments due to lower shipments in developing markets, including the impact of the Venezuela deconsolidation and minor brand divestitures. 

Beauty segment organic sales grew one percent versus year ago as positive impacts from pricing more than offset 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. Hair care organic sales were unchanged as growth on Pantene and Head & Shoulders was offset by declines on other brands. In the US. both Pantene and Head & Shoulders gained market share.

Grooming segment organic sales decreased 1% as growth in international markets was more than offset by declines in the US. The benefits from higher pricing in shave care and appliances were more than offset by unit volume declines.

Health care segment organic sales decreased one percent as higher pricing in both oral care and personal health care was more than offset by lower volume primarily related to a weak cough and cold season.

Fabric care and home care segment organic sales increased three percent versus year ago driven by higher organic volume in developed regions and increased pricing. Home care organic sales growth was driven by product innovation and fabric care organic sales grew behind innovation and increased marketing support.

Baby, feminine and family care segment organic sales were unchanged. Baby care organic sales declined due to lower volume, mainly from competitive activity. Feminine care organic sales increased driven by growth in adult incontinence and benefits from carryover pricing in developing markets. Family care organic sales were unchanged.    

For the nine months, sales fell 9% to about $49.2 billion, but net earnings jumped 31% to $8.6 billion.  

In fiscal 2016, P&G expects core earnings will fall 3-6% compared with the prior year's $3.76 per share. It still foresees a mid-single digit increase in core earnings per share, on a constant currency basis. The Cincinnati-based company said that it expects fourth-quarter core earnings per share to be “significantly lower” than year-ago results due to increased advertising investments, a higher tax rate, pressure from the strong dollar and lower non-operating income.