P&G Continues to Ride the Shift to Premium Products -- WSJ
January 24 2020 - 3:02AM
Dow Jones News
By Sharon Terlep and Micah Maidenberg
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 24, 2020).
Procter & Gamble Co. posted another quarter of rising sales
and profit as the marketing giant persuaded consumers 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 earlier
in the quarter ended Dec. 31. On that basis, sales rose 7% in the
previous quarter.
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.
"These results required us to overcome several challenges," he
said, citing global economic and political volatility and
intensifying competition.
Shares in P&G were off 1% on Thursday afternoon. The stock
has surged about 30% in the past year to trade near record highs,
as the company has recorded a growth streak that has outpaced
rivals such as Kimberly-Clark Corp. and Unilever PLC.
Kimberly-Clark, which makes Huggies diapers and Kleenex tissues,
on Thursday reported a 3% gain in organic sales for the same
quarter. The smaller company, which has also been raising prices,
forecast growth for the current year that was below P&G's
projections.
"It's still early days," Kimberly-Clark Chief Executive Michael
Hsu said during a call with analysts. "We're making good progress,
and I expect more going forward."
P&G executives have said they expect rivals to bolster
efforts to woo competitors with new products, and Kimberly-Clark
said Thursday that new offerings such as super premium Huggies
diapers are soon headed to stores, which should help the company
gain ground on its rival.
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.
The most pressing question now facing P&G is whether the
company can maintain growth as rivals step up competition and
consumers and retailers potentially begin to push back on price
increases.
In the December quarter, the company raised prices 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 during
a call with reporters. "There is still work to do but we are making
significant progress."
P&G's beauty business, covering brands such as 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 earlier. 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, such as specialty toothpaste and Tide Pod detergent
packets. Prices were up 1% across its portfolio in the quarter,
P&G said.
China, where P&G was struggling a few years ago, proved to
be a significant growth engine for the quarter. P&G said it
gained market share and sales rose 14% from a year earlier.
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 a 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
exceeded 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 sharon.terlep@wsj.com and Micah
Maidenberg at micah.maidenberg@wsj.com
(END) Dow Jones Newswires
January 24, 2020 02:47 ET (07:47 GMT)
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