P&G Continues to Ride Shift to Premium Products -- Update

By Sharon Terlep and Micah Maidenberg 

Procter & Gamble Co. reported another quarter of rising sales and profits as the marketing giant convinced people to upgrade to premium versions of Tide and Crest products, but the growth slowed from the previous quarter.

The Cincinnati company said organic sales, a measure that excludes currency moves and deals, increased 5% from a year ago in the quarter ended Dec. 31. On that basis, sales rose 7% in the previous quarter, and Wall Street was expecting even stronger growth.

P&G finance chief Jon Moeller said the company is pleased with the growth and the results are evidence that P&G's turnaround plan is working. "We're looking, as we innovate, to be able to modestly [increase] price and still build value," he said.

Shares of P&G slipped 2% in premarket trading Thursday. The stock surged about 30% in the past year and was trading near-all time highs, as the company recorded a streak of growth that outpaced rivals like Kimberly-Clark Corp. and Unilever PLC.

Kimberly-Clark, which makes Huggies diapers and Kleenex tissues, on Thursday reported a 3% gain in organic sales in the same period. The smaller company, which has also been raising prices, forecast growth for the current year that was below P&G's projections.

P&G's turnaround has been driven by higher prices, new products and a leaner portfolio of brands. The company has shed mass market beauty brands and led the industry in a move to raise prices to offset commodity costs and fatten profit margins.

In the December quarter, the company was able to push through price increases in its struggling Gillette razor business. Until recently, brand sales were falling despite aggressive price cuts in prior years. Gillette, "is strengthening quite nicely," Mr. Moeller said in a call with reporters. "There is still work to do but we are making significant progress."

P&G's beauty business, covering brands like Olay and Pantene, delivered the strongest growth in the quarter, with organic sales rising 8%. The health unit, which includes products such as Vicks cough drops and Crest toothpaste, recorded a 7% gain.

The one weak spot was the company's baby care business, which includes its Pampers diapers, where organic sales declined from a year ago. Mr. Moeller said the division is fighting tough competition, as birthrates are falling in China and the U.S. Both P&G and Kimberly-Clark have sought to offset the impact of those declines with higher-end offerings and by focusing on other categories, such as adult diapers and feminine care products.

P&G has benefited of late in part because consumers have proved willing to pay up for the more-expensive products it has developed, like specialty toothpaste and Tide Pod detergent packets. Prices were up 1% across its portfolio in the quarter, P&G said.

A healthier consumer environment in the U.S. has helped the company as well. Sales at retail shops, restaurants and online rose 0.3% on a seasonally adjusted basis in December from a month earlier, according to the Commerce Department, a solid showing for the month including the holiday shopping season.

P&G said Thursday it now expects organic sales to increase 4% to 5% for the fiscal year that ends in June, up from a prior forecast that anticipated a 3% to 5% gain on that measure.

Profit for the fiscal second quarter rose to $3.72 billion, from $3.19 billion the year earlier. Overall, P&G reported $18.24 billion in quarterly sales, short of the $18.42 billion consensus compiled by FactSet. The company's adjusted profit of $1.42 a share was higher than forecasts from analysts by 5 cents.

Kimberly-Clark, which has been cutting thousands of jobs and closing factories, reported profit of $547 million on flat sales of $4.58 billion. It forecast organic sales growth of 2% for 2020.

Write to Sharon Terlep at [e-mail] and Micah Maidenberg at [e-mail]

(END) Dow Jones Newswires

January 23, 2020 09:22 ET (14:22 GMT)

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