Procter & Gamble is expecting the effects of restructuring Olay in the U.S. and Chinese markets to continue through the duration of the year.
In the U.S., P&G has said it’s working to focus on its Regenerist products with a plan that included stockkeeping unit cuts, and in China, is in the midst of a counter reconciliation.
“Olay is stabilizing,” said P&G chief financial officer Jon Moeller on the company’s earnings call Tuesday. “We’re going to annualize, coming up here in the not-too-distant future, the sku cuts that we made in the U.S., we annualize those in the back half. And we’re just in the middle of redoing our entire counter system in China…that includes some reductions in the number of counters to be more relevant in the channels that we want consumers shopping for Olay in, and to have better overall shopping and consumer experience. So, I expect that those two items, the sku reduction in the U.S. and a counter rationalization or redesign in China, will continue to put some pressure on Olay, call it through the balance of the fiscal [year].”
In addition to continuing to work on Olay, P&G said it sees hair care and men’s grooming in the U.S. as two potential areas for expansion.
“Hair care and baby care, two of our largest categories, were both up 2 percent but below the rates of market growth in these categories,” Moeller said. “These businesses, along with the grooming business in the U.S., represent notable opportunities for further top line acceleration.”
In grooming, P&G grew organic sales by 3 percent during its past two quarters, Moeller said. “There [are] opportunities as we increase our relevance from a relevance standpoint…as we increase innovation across each of the tiers of the business, whether that is disposables, midprice systems like Mach3 or at the high-end.
In hair, Pantene and Head & Shoulders were both up midsingle digits, but other, smaller brands are still a challenge, according to Moeller. “We have some issues…with some of our smaller brands, like Herbal Essences, for example, and we have a whole new program…coming to market in the second half of the year,” he said.
Moeller also singled out China as a growth driver, saying that grooming was up 17 percent for the quarter there and that the entire personal-care business, driven in part by SK-II, was up 10 percent.
For its first fiscal quarter, P&G reported $2.76 billion in net earnings for the quarter, a 5 percent increase from the prior year. Net sales remained constant, at $16.5 billion. Diluted net earnings per share were 96 cents, up 5 percent, and core earning per share was $1.03, 5 cents above analyst consensus of 98 cents.
Net beauty sales were down 1 percent, but organic beauty sales were up 3 percent for the quarter. P&G said that SK-II helped drive growth in the skin and personal-care segment, while Head & Shoulders and Pantene both posted midsingle-digit organic sales growth, offset by growth in smaller brands.
P&G is projecting 2 percent organic sales growth for 2017. Headwinds from foreign currency exchange rates and minor brand divestitures are expected to drop sales growth by about 1 percent. Core EPS is expected to be in the midsingle digits, compared with fiscal 2016 core EPS of $3.67. P&G’s sale of 41 beauty brands to Coty Inc. is expected to have a positive impact on EPS, according to the company.
Asked by a William Blair analyst about direct-to-consumer sales and sustainability, and whether P&G needed to accelerate its focus on those internally or via M&A, Moeller said that the company is “going to look at all [factors] that enable us to improve our sustainability.” He continued, “I don’t think anything is required from an acquisition standpoint, but I also don’t want you to think that we’re not very open-minded in our pursuit of this objective, because we are.”