Even with a pricing increase of 2 percent, net beauty sales at Procter & Gamble Co. fell 5 percent in the third fiscal quarter.
The beauty segment’s organic sales increased 1 percent, with higher pricing offsetting lower sales volume. Solid sales for SK-II offset declines at Olay. In hair care, Pantene and Head & Shoulders grew sales and gained market share, but the category’s organic growth was flat because of declines at other brands. Head & Shoulders has experienced 8 percent compound average sales growth over the past 10 years, even with currency impacts, P&G chief financial officer Jon Moeller said on the company’s earnings call.
Organic grooming sales decreased one percent as growth in international markets was “more than offset by declines in the U.S.,” P&G said. Moeller said in grooming, P&G needs “to be more present than we are in the direct-to-consumption e-commerce channels.”
The company is targeting $10 billion in cost savings with plans to reinvest in research and development, products and packaging improvements, brand awareness and trial programs, according to Moeller. “There are clear opportunities to continue to improve our first moment of truth, which is a lot about the package,” he said.
Group net earnings for the quarter were $2.78 billion, up 27 percent from $2.19 billion for the prior-year quarter. Income for the quarter was $3.31 billion, up 10 percent from $3.02 billion. Diluted net earnings per common share were $0.83 for the quarter, down 2 percent from $0.85. Core earnings per share were $0.86, down 3 percent. Organic sales were up 1 percent.
The company’s shares closed at $79.55, down more than 2 percent.
Overall, net sales for the quarter were down 7 percent to $15.76 billion, from $16.93 billion a year earlier. P&G said that decrease was from the negative impact for foreign exchange, the Venezuela deconsolidation and minor brand divestitures.
For the nine months ended March 31, P&G’s net sales decreased 9 percent to $49.2 billion from $54.2 billion. The company’s net earnings were $8.6 billion for the nine months, up from $6.6 billion.
For fiscal year 2015, P&G had $70.7 billion in net sales, which were down 5 percent from fiscal 2014. Beauty accounted for 18 percent of those sales, but P&G has continued revising its beauty holdings. Investors gleaned slightly more insight into that segment last Friday when Coty released documents that said P&G’s retail hair and cosmetics unit was responsible for 38 percent of net sales, fine fragrances brought in 36 percent of net sales, and the salon professional business contributed 26 percent to overall net sales, for fiscal 2015.
The company expects to close the sale of 41 beauty brands to Coty in the second half of the year, Moeller said. In total, P&G is working to divest 105 brands, which contributed about 6 percent of the company’s profits, according to the cfo.
As it sheds a large portion of its beauty holdings, P&G has also made a deal to sell its Sarraeguemines, France-based Ondal Sarl plant, which produces retail and professional hair care products, as well as body care offerings, to the Mibelle Group. P&G is also selling a group of hair-care brands, including Pert, Shamtu and Blendax, to Henkel.