Procter & Gamble stock jumped over 2 percent to $76.88 this morning after the consumer giant reported a strong profit, but declining sales for the first quarter of fiscal 2016. P&G also revised its outlook, which was impacted by the planned divestiture of a large portion of its beauty business to Coty.
Sales tumbled 12 percent to $16.5 billion from last year’s $18.7 billion and missed analysts’ estimates of $17 billion. The company blamed foreign exchange headwinds and the costs to exit unprofitable businesses. P&G is struggling with its products being very highly priced, not only in the U.S. but also overseas since Russia’s currency has had a 40 percent devaluation and the euro and yen are down 20 percent. P&G has also embarked on a cost cutting effort.
Diluted net earnings of 91 cents a share and easily beat last year’s 69 cents a share. Core earnings of 98 cents per share beat analyst expectations of 94 cents a share.
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Beauty segment organic sales decreased 2 percent as volume dropped in Skin and Personal Care due to competitive activity and stockkeeping unit reductions. This was partially offset by growth in the super-premium SK-II brand. Hair-care volume also declined due to competitive activity and price increases in the previous fiscal year. P&G has inked a deal to sell some of its beauty businesses to Coty last July and that represents roughly $5.5 billion in annual sales.
“Top-line results were soft, as expected, given significant foreign exchange impacts, our deliberate choices to exit unprofitable businesses and the early stage of the improvement plans we’re implementing in our largest categories and markets,” said chief executive officer A.G. Lafley. “We continue to make strong progress on productivity savings, which will fuel smart investments in top-line growth. We expect second-quarter organic sales growth to be positive and to further strengthen in the back half as we invest to build awareness and trial of our consumer-preferred products and brands.”
P&G revised its 2015 fiscal year earnings from $4.02 to $3.76. Looking ahead, sales will be down high-single digits for fiscal year 2016 as compared to fiscal year 2015. On the conference call, chief financial officer Jon Moeller said, “We will not cut smart investment to offset foreign exchange impacts, which means we could very well end up below the guidance range. On the other hand, we’re working to accelerate and enhance productivity, and commodities have generally been a help.”
P&G’s focus is now on fabric-care products like Tide, the Gillette business and baby-care products like Pampers going forward.
P&G said that its October organic sales so far saw growth of 3 percent and plans on a stronger second quarter and second half to the year.