P&G’s lackluster sales growth shows turnaround has yet to take hold


Fresh off a bitter proxy battle, there’s something for everyone in Procter & Gamble‘s results.

While the quarterly report on Friday surpassed Wall Street estimates on earnings, it fell slightly short on sales, largely due to weakness in its Gillette razor business. Strength in its beauty and home-care businesses helped to lessen the impact.

The mixed sales results for its fiscal first quarter are likely to give both sides of the ongoing fight between P&G and activist investor Nelson Peltz ammunition in their continued war of words.

Share prices fell 1.4 percent in morning trading Friday.

Here’s what P&G reported compared with what Wall Street expected:

  • EPS: Adjusted $1.09 vs. $1.08 expected by a Thomson Reuters’ consensus survey of analysts.
  • Revenue: $16.653 billion vs. $16.698 billion expected by Thomson Reuters.

The reported revenue of $16.65 billion shows 1 percent growth from a year earlier. Organic sales, which strips out changes in currency, also rose 1 percent.

P&G said the results met its expectations and put it on track to deliver targets for the fiscal year.

The consumer products giant is coming off the biggest ever proxy fight, in which it beat Peltz’s bid to get on the board by a razor-thin margin. Peltz, who continues to contest the election results, has said regardless of the outcome he will continue to pressure the company.

Peltz has criticized P&G for market share losses, lack of innovation and weak sales. The maker of Tide detergent, Gillette razors and Bounty paper towels has argued it’s in the midst of a turnaround that will address these complaints. But it says it needs more time to see the fruits of its labor.

P&G declined to comment on the ongoing proxy fight directly on its earnings call, but noted it has received investor feedback that it must move faster.

The biggest weak spot for the quarter was sales at its Gillette shaving business, which reported a 5 percent drop in net sales. Peltz has said P&G was not quick enough to compete against upstarts like Dollar Shave Club.

P&G blamed some of slow-down on lagging category sales in the U.S. and Brazil.

Sluggishness in developed regions, along with natural disasters, also slowed sales more broadly, P&G said. It emphasized on its earnings call the opportunity it sees in China, even hosting the call from the country.

P&G saw more positive results in beauty and household, offering support for management’s argument with Peltz over the company’s treatment of smaller brands. P&G has said that focusing on the technological strength of its core products like Tide is more important to its long-term health than gambles on trendier products like those Peltz wants it to acquire.

Tide sales helped drive the household division’s net sales growth of 2 percent, while strong sales of its premium skincare brand SK-II, aided its beauty business, which saw 5 percent growth.

Separately, P&G has pointed to the success of SK-II, which is popular in China, as example of its ability to grow and market a smaller brand.

Some analysts though, had been expecting more, particularly as Trian has shined a spotlight on P&G.

Organic sales growth was “disappointing relative to expectations that the company would have had a stronger quarter given uncertainty regarding the proxy fight with Trian,” wrote analysts an Stifel.

P&G tempered lagging sales with improving margins, reporting adjusted earnings of $1.09 a share, a penny above expectations.

It expects organic sales growth of 2 to 3 percent for fiscal 2018 and net sales growth of roughly 3 percent. It anticipates core earnings per share growth of 5 to 7 percent.

“Looking forward, we will drive innovation, productivity and organization transformation to accelerate top-line growth while further expanding our industry-leading profit margins,” Taylor said in a statement.

Correction: This story was revised to delete an incorrect reference to P&G owning Duracell batteries. It formerly owned the brand.

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