By Serena Ng and Angela Chen
Growth continues to be elusive for Procter & Gamble Co.
The world's largest consumer products company saw sales growth
decelerate over the past year, underlining the depth of challenges
it faces as it completes the exits of close to 100 brands and
installs a new chief executive in the coming months.
The Cincinnati, Ohio, maker of Tide detergent, Crest toothpaste
and Pampers diapers reported a 9% sales drop for the three months
to June, taking its net sales for its recently ended fiscal year
down 5% to $76.3 billion. The stronger dollar was chiefly
responsible for the declines, but even excluding that effect,
P&G barely grew.
Organic sales, a metric closely followed by investors that
strips out currency moves and acquisitions and divestments, were
flat in the recent quarter and rose just 1% in the past year, down
from 3% growth a year earlier.
"Much of the sales growth is ahead of us," P&G Chief
Executive A.G. Lafley said on a call with analysts Thursday. He
said the company has "a strong lineup of products" that will be
rolled out over the coming months and years that should help
generate sustainable growth. He also pointed to deep cost cuts and
productivity gains the company has made that should boost its
bottom-line for many years to come.
Investors' patience, however, is wearing thin. P&G shares
tumbled 3.5% to $77.79 in late morning trading after the results
were released, and are down nearly 15% in the year to date.
The company also hinted that profit might decline for its new
business year, saying it expected a per-share profit slightly
below, or up in a mid-single digit range, from last year.
On the earnings call, several analysts voiced frustration over
the company's weak performance.
"The underlying business appears to be getting worse and maybe
at an accelerating rate," John Faucher, a J.P. Morgan analyst,
said, and asked if the company could handle so much change at the
same time.
Ali Dibadj, a Bernstein Research analyst who has been critical
of P&G's current strategy, said, "Maybe P&G is just too big
to run."
He reiterated a call he previously made for the company to break
up.
Mr. Lafley, in response, said P&G is significantly less
complex after reaching deals to eliminate over half its brands, and
added he believes the company can generate consistently stronger
results from its remaining collection of 65 brands in 10 product
categories.
On Nov. 1, Mr. Lafley will hand the CEO reins to David Taylor, a
35-year company veteran, and shift to the role of executive
chairman, where he will continue to help run the company and mentor
Mr. Taylor in his new role. Mr. Taylor didn't speak on Thursday's
call with analysts.
P&G has, since the 2008-2009 recession, struggled to
accelerate growth or keep pace with smaller and nimbler rivals. In
the past year, some big brands like Tide laundry detergent and
Oral-B toothpaste sold well, but others like Olay skin creams
continued to struggle, and P&G's operations in some overseas
markets lost ground.
In June, P&G's sales in Russia plunged 57%, as the
devaluation of the ruble led P&G to raise prices to avoid
unprofitable sales in a market where it has been the biggest
player, said Jon Moeller, the company's chief financial officer.
The result was lower sales, and P&G lost share to rivals who
didn't face similar currency pressures.
Overall, P&G reported quarterly net income of $521 million,
or 18 cents a share, down from $2.58 billion, or 89 cents a share,
a year earlier. Its net profit for the full year was $7 billion,
down 40%. In the current fiscal year that ends in June 2016,
P&G has forecast flat to slightly higher organic sales
growth.
There were some bright spots in P&G's results. The hair-care
brand Pantene modestly increased sales worldwide, and its U.S.
sales and market share expanded for the first time in several
years, Mr. Lafley said.
Meanwhile, in a bid to reverse Olay's declining sales, Mr.
Lafley said the brand has significantly reduced its assortment of
products and simplified its in-store shelf displays, and is rolling
out a new brand campaign in the coming months.
The company's grooming business increased organic sales by 1%
during the past year, but Mr. Lafley said the division had a
challenging year in part because American men are shaving less and
Gillette has had to battle the surge of online rivals such as
Dollar Shave Club.
P&G in the recent quarter deconsolidated its Venezuelan
operations, essentially writing off its investment the country even
though it continues to do business there. The move, which resulted
in a $2.1 billion hit to P&G's bottom line, was due to an
inability to convert currency and extract dividends from its
Venezuelan unit. A few other companies, including Ford Motor Co.
and Jarden Corp., made similar accounting changes earlier this
year.
Write to Serena Ng at serena.ng@wsj.com and Angela Chen at
angela.chen@wsj.com
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