P&G's Sales Growth Shows Consumers Will Pay More -- Update

Date : 04/23/2019 @ 7:02PM
Source : Dow Jones News
Stock : Unilever Dr (UNA)
Quote : 54.67  0.66 (1.22%) @ 9:12AM
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P&G's Sales Growth Shows Consumers Will Pay More -- Update

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By Sharon Terlep 

Makers of household products are flexing their pricing power, as consumers show that they are willing to pay more for big-name brands.

Procter & Gamble Co. on Tuesday reported its strongest quarterly sales growth in eight years, as the maker of Tide detergent and Gillette razors got a boost from higher prices and growth in developing markets. The results come after Kimberly-Clark Corp., maker of Huggies diapers and Cottonelle toilet paper, and Unilever PLC, which sells Dove soap and Hellmann's mayonnaise, reported solid sales gains, also driven by price increases.

The companies are among several large makers of consumer products that have raised prices, or pledged to do so, in response to higher costs of raw materials and unfavorable foreign-currency swings.

P&G, the industry's biggest player, was first to unveil price increases and counted on rivals to follow suit, which they have.

The moves followed a decadelong stretch in which price cuts were the norm as U.S. companies were reluctant to test consumers' loyalty and spending power during a fragile economic recovery. Compounding the challenges was that American shoppers increasingly have shifted to store-branded products or online upstarts.

P&G changed course last summer after years of trying to combat weak demand by lowering prices. Starting last September, P&G began increasing prices on a rolling basis, from around 4% to as much as 10% on products including its Pampers, Bounty, Charmin and Puffs brands. The increases were expected to be mostly in place by February.

On Tuesday, P&G said organic sales -- a closely watched metric that strips out currency moves, acquisitions and divestitures -- rose 5% in the fiscal third quarter. It is the third consecutive quarter of solid sales gains for P&G, which for years had been struggling with tepid growth. The company attributed 2 percentage points of the overall gain to price increases and another 2 percentage points to higher shipment volumes compared with a year ago.

"I feel very good about the results this company is delivering," P&G finance chief Jon Moeller said.

It was the largest gain since the spring of 2011, when P&G also increased organic sales by 5%. The last time sales growth topped that was before the U.S. recession.

The growth comes more than a year after activist investor Nelson Peltz joined the P&G board following a costly proxy fight. P&G has implemented some of Mr. Peltz's suggestions, such as overhauling compensation for managers, while saying it had already begun to lay the groundwork on other aspects of the business, including organizational change and acquisitions of upstart brands.

P&G shares fell 3% to $102.82 in midday trading on Tuesday, as investors eyed P&G's thinner margins, higher expenses and muted outlook. P&G stock is up 40% in the past year.

Mr. Moeller warned that the company is expecting tougher conditions next fiscal year, which begins in July. Transportation and materials costs will continue to weigh, he said, while the impact of currency fluctuations and tariffs stemming from tension between the U.S. and its trading partners could become more acute.

"If we do our job and continue to increase our superiority advantage and that translates into sustained market growth, we'll be fine," Mr. Moeller said. "If we're unable to do that, we'll have challenges."

Another looming threat to pricing strategy: makers of private-label and smaller brands, neither of which are raising prices in conjunction with big names, Kimberly-Clark CEO Michael Hsu said Monday.

P&G's beauty division had the strongest gain, with 9% organic sales growth, while most categories grew, including fabric and home care, health care, and baby, feminine and family care.

Only its grooming business, which includes the Gillette brand, posted a decline in organic sales of 1% in the period. Mr. Moeller said shaving appliances fared worse than sales of Gillette razors, which have been a persistent trouble area.

The shaving brand has faced competition from upstarts and has lowered prices to maintain its leading market share. In January, Gillette released a campaign invoking the #MeToo movement, receiving mixed consumer reviews.

Asked by an analyst whether P&G still needs Gillette, given the woes, Mr. Moeller said shaving is "a business that we not only want to keep but that we like and want to win in the long term."

During the quarter ended March 31, P&G said net sales were up 1% to $16.46 billion, as unfavorable foreign-exchange fluctuations cut into the total.

The company recorded a profit of $2.75 billion, or $1.04 a share, up from $2.51 billion, or 95 cents a share, a year earlier. P&G raised its organic-sales guidance for the full year. It now expects organic sales to be up a solid 4%, compared with its previous forecast in January of between 2% and 4%.

--Aisha Al-Muslim contributed to this article.

Write to Sharon Terlep at sharon.terlep@wsj.com

 

(END) Dow Jones Newswires

April 23, 2019 13:47 ET (17:47 GMT)

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