The Procter & Gamble Co. is focusing on strengthening its existing beauty portfolio, rather than acquisitions, as it looks to accelerate its business in the category.
This story first appeared in the January 27, 2014 issue of WWD. Subscribe Today.
Beauty was the weakest top-line performer of the Cincinnati-based consumer products giant’s five business segments in the second quarter ended Dec. 31, as category sales declined 2.2 percent, to $5.28 billion from $5.4 billion, and were flat after adjustment for currency fluctuation. Net earnings for the segment rose 5.7 percent to $927 million from $877 million a year ago. Gains “from market growth and innovation” helped Prestige, Hair Care, Deodorants and Personal Cleanings products while Skin Care sales declined.
On a Friday morning conference call with analysts who peppered him with questions about beauty’s relatively weak performance, Jon Moeller, chief financial officer, mentioned cosmetics and personal care as standout performers within the category during the October-to-December quarter, in which overall sales accelerated toward the end of the period.
Even in the challenging hair-care business, there have been pockets of strength, such as double-digit growth in Europe, the Middle East and Africa for the Head & Shoulders brand. Pantene remains the “biggest opportunity” in hair care, he said, and the company has high hopes for its expansion into hair products for young men with its Old Spice brand.
“So we are hopeful that we are rounding the corner in hair care,” he said. “On skin care, we still have some work to do, and that’s going to take some time….We share the impatience that exists externally. We know that we have more work to do, but we are comforted by the progress that we are making.”
He said that an acquisition to enhance its skin-care portfolio “certainly [is] not something that we have crossed off the list” and is considered “routinely.”
“There are opportunities on both Olay and SK-II and there are opportunities, if we needed to, to create equities or properties organically,” he said.
He noted that many of the company’s strongest beauty brands — Pantene, Olay, Old Spice, SK-II, Hugo Boss and Lacoste — “literally started out as very small kind of one-country, two-country, less-than-$100-million-in-sales businesses and now are in some cases multibillion-dollar businesses, category leaders, global leaders in their categories.”
Overall, P&G’s net income in the quarter fell 15.5 percent to $3.43 billion, or $1.18 a diluted share, from $4.06 billion, or $1.39, in the year-ago period. Adjusted earnings per share, eliminating restructuring charges, was $1.21, 1 cent higher than the Wall Street consensus estimate. Total revenues rose 0.5 percent to $22.28 billion from $22.18 billion, just missing the $22.33 billion mark expected, on average, by analysts.
Investors were encouraged that P&G reiterated its full-year guidance for organic sales growth of between 3 and 4 percent and core EPS growth of between 5 and 7 percent. A.G. Lafley, chairman, president and chief executive officer, commented, “We expect strong earnings growth in the second half of the fiscal year driven by solid top-line growth, moderating headwinds from foreign exchange and productivity savings that build throughout the year.”
The earnings “meet” and guidance affirmation helped shares of P&G rise 1.2 percent to $79.18 Friday despite a 2.1 percent decline in the S&P 500, which closed at 1,790.29.