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P&G Beauty Profits Flat in Fourth Quarter

Competitive pressure in North America and Western Europe offset growth in developing regions.

Bob McDonald defended Procter & Gamble Co.’s business model Friday, pointing to the prestige beauty business as an example of success. But the consumer product giant’s chairman, president and chief executive officer also acknowledged it will take some time to get the company back on the track it wants.

Fourth-quarter profits were flat in the company’s beauty division, and sales slipped as competition in North America and Western Europe heated up.

P&G and McDonald have been under the microscope lately, pressured by analysts for months and, more recently, by activist investor William Ackman. Some of that pressure has come off of McDonald — who received explicit backing of the company’s board last month and reported stronger-than-expected overall fourth-quarter earnings Friday.

On a conference call with analysts, McDonald described the company as “centered on consumer insight, superior products and compelling advertising.”

“The model, when executed, works,” McDonald said. “It’s working now in developing markets. It’s working globally in Pampers, our first $10 billion brand. It’s working in prestige beauty. It’s working on Vicks. It’s working in home care. We now need to more fully fund it through improved productivity and more consistently execute it. It’ll take some time to get back on the trajectory we want, but I give you my commitment that we will get back on this trajectory.”

Ackman recently took a stake in the consumer products giant and is expected to push for change. He tried and failed to nudge Target Corp. to spin off the real estate under its stores, but was more successful in getting J.C. Penney Co. Inc. to begin to reshape itself, orchestrating the hiring of Ron Johnson as ceo. On a separate call with reporters, McDonald said the company is in touch with all of its investors, including Ackman’s Pershing Square Capital Management.

Earnings at P&G’s beauty business were flat at $382 million in the fourth quarter as slipping sales outweighed the impact of better profit margins.

The company’s beauty sales fell 4 percent to $4.8 billion, although organic sales grew by 1 percent. Unit volume decreased 1 percent and price increases added 4 percent to sales growth, but the mix of products reduced sales by 3 percent with disproportionate growth in developing regions and in products with lower prices.

“The growth in developing regions was offset by developed regions, which decreased mid-single digits due to competitive pressure in North America and Western Europe,” the company said.

Net earnings attributable to the consumer products firm rose 44.7 percent to $3.63 billion, or $1.24 a diluted share, from $2.51 billion, or 84 cents, a year earlier. Adjusted earnings tallied 82 cents a share — 5 cents ahead of the 77 cents analysts projected.

Sales for the three months ended June 30 slipped 1.2 percent to $20.21 billion.