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Profits at P&G Beauty Rise 9%

Consumer products giant boosts overall profit guidance, sees its shares gain.

The Procter & Gamble CO. made a strong enough second-quarter showing to win the tentative approval of none other than William Ackman — the activist investor who has blasted chairman, president and chief executive officer Bob McDonald as the wrong person to run the consumer products giant.

The firm topped Wall Street’s earnings estimates for the quarter, boosted projections for the year and made progress in the beauty area, where the management has prescribed a dose of new product offerings to excite consumers.

“P&G put up a very good quarter,” Ackman said during a live phone interview on CNBC. “Their organic revenue growth is lower than [their] competitors’, but they are making progress. If Bob can turn this thing around, he deserves the credit. And he’ll be the right guy [as ceo].

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“And if he can’t, don’t misinterpret my previous statement — based on the last three years of P&G, it really certainly looked like Bob is not the right guy for the company,” Ackman said. “But if the company can make dramatic progress and this is an indication of significant progress then [I] hope that Bob can be successful and can make it. Again, nothing against him, at the end of the day it’s about results.”

McDonald has the company focused on enticing consumers with new offerings as well as cost cuts.

“We’re seeing the normal level of promotion support, perhaps with the exception of the hair-care category, which is probably one of the most active, given the number of new entries that have occurred over the last couple of years,” McDonald said on a conference call with analysts. “The antidote, or the method of growth here, is behind innovation.”

The company is expanding its hair care products with Vidal Sassoon Pro Series in the salon affordable segment and Pantene Expert in superpremium distribution.

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And last month, P&G began shipping Olay Total Effects color correction cream, which fights lines, wrinkles and age spots. This month, a new midtier collection of cleansers and moisturizers called Olay Fresh Effects was introduced to the midtier market. Olay Regenerist is also getting more attention with the launch of Olay Microsculpting Cream.

“In skin care, we’re investing to ensure sufficiency of our core Olay business and we’re bringing new innovation that addresses key segments where we currently have portfolio gaps [as] it’s critical to fill those portfolio gaps,” McDonald said.

Earnings from continuing operations in P&G’s beauty unit rose 9 percent to $877 million for the quarter ended Dec. 31. Sales for the segment inched up 1 percent to $5.4 billion while unit volume was flat. Organic sales rose 3 percent.

The firm said most of its beauty businesses posted higher sales that were “driven by innovation and higher pricing.” Sales, however, decreased in the skin-care area, where competition has been tough.

McDonald noted that the beauty business has seen organic sales growth in 11 out of the last 12 quarters, averaging roughly 3 percent growth over the past three years.

Asked about dealing with the pressure from outside, McDonald said: “We want a higher share price just like our shareholders do. We have delivered in the bottom line and we’ve — importantly — reinvested our savings in the second half.”

The overall company logged core earnings per share of $1.22, which came in 1 cent ahead of the $1.11 that analysts projected. The firm’s organic sales grew 3 percent to $22.2 billion.