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Procter & Gamble Co.’s net earnings gained 2 percent in the third quarter, but Wall Street is holding out for more consistent growth.
This story first appeared in the April 24, 2014 issue of WWD. Subscribe Today.
The company reported net earnings for the three-month period of $2.64 billion, or 90 cents a diluted share, compared with $2.59 billion, or 88 cents, in the year-earlier period. Net earnings attributable to P&G were $2.61 billion, compared with $2.57 billion a year earlier. The company’s net sales in the quarter were essentially flat at $20.56 billion, compared with $20.6 billion the previous year. Organic sales rose 3 percent.
The results sent P&G’s share price to a low of $79.38 at one point Wednesday morning. Shares later closed down 0.3 percent to $80.36 on the New York Stock Exchange.
In the beauty segment, net sales declined 2 percent to $4.69 billion, while organic sales gained 2 percent helped in part by new products in hair care, deodorants and personal cleansing. The gain was partially offset by sales decreases in the salon professional and skin-care segments, primarily in Asia.
Little was mentioned of the beauty category during Wednesday’s call with analysts. But Jon Moeller, P&G’s chief financial officer, said the beauty segment’s organic sales gain is representative of the state of the overall beauty business, which has begun to slow somewhat. “We should look at them as decent numbers,” Moeller told analysts.
Stifel analyst Mark Astrachan said, “P&G still needs to be more consistent” across the board, but particularly in beauty. “Beauty industry growth may have slowed, but it is still growing faster than P&G’s beauty business, so the company is still underperforming.”
Across P&G’s remaining product segments — grooming, health care and baby, feminine and family care — net sales were down across all but fabric care, which has been boosted by single-use detergent packs such as Tide Pods.
Moeller added that P&G is also making progress on its plans to reduce head count: From February 2012 through March 2014, P&G cut 8,000 jobs, representing a 13 percent reduction in its nonmanufacturing workforce.
“The elimination of duplicative roles and optimization of the supply chain can only be accretive to shareholders and rewarding to surviving employees if a stronger P&G emerges from this reorganization,” wrote Consumer Edge Research analyst Javier Escalante in a research note on Wednesday. “P&G’s is a multiyear turnaround and boils down to the caliber of [chief executive officer A.G.] Lafley’s direct reports at the [Global Business Units], in our view.”
He stated that P&G lacks the executive talent needed to make more assertive moves in beauty and personal care, health and grooming, and called for the company to look outside the firm for new hires.
“P&G shareholders and employees will benefit from attracting external talent that could assertively run P&G’s beauty and health businesses,” he stated.
On the marketing front, P&G expects to spend less on marketing than in prior years but declared that overall effectiveness will be well ahead of last year, thanks to a changing media mix that relies more on digital efforts.
P&G’s Moeller said, “We have no intention of letting up on the cost savings and productivity initiatives.”
P&G continues to trim noncore businesses from the portfolio. Moeller noted that over the last six years, P&G has exited businesses representing more than $6 billion in sales, including coffee, snacks and pharmaceuticals, to name a few.
“We will continue to exit businesses where potential buyers can create more value than ourselves,” he said.
For instance, in beauty, P&G signed an agreement to sell the DDF Skincare brand and its global assets to the Designer Parfums group. “This is a clear example of P&G’s commitment to focus on core brands and accelerate our beauty business,” said a P&G spokesman.
Moeller reiterated P&G’s focus on productivity, calling attention to P&G’s plans to redesign its supply chain in North America. He noted that the effort could extend to other countries as well.
“We operate 35 manufacturing facilities in North America today, only six of which are multibusiness or multicategory. We’re consolidating operations into multicategory sites located closer to the customers and consumers we serve, allowing us to respond quickly to their needs and provide better service at the best possible cost,” said Moeller. “We’re also transforming our distribution operations, consolidating customer shipping and product customization operations into fewer distribution centers, which are strategically located closer to key customers and key population centers, enabling 80 percent of the business to be within one day of the store shelf and the shopper.”