Procter & Gamble Co. reported its second-quarter profit surged 53 percent, boosted by the sale of Folgers, but the consumer products giant struck an austere tone as a tough global economy slowed sales.
Net income for the quarter ended Dec. 31, was $5 billion, or $1.58 a diluted share, up from $3.27 billion, or 98 cents a share, in the year-earlier period. Dragged down by lower shipments to retailers and unfavorable foreign exchange, net sales declined 3.2 percent to $20.37 billion from $21.04 billion in the year-earlier period. Organic sales gained 2 percent for the quarter, at the lower end of P&G’s revised guidance of 2 to 5 percent.
Asked by an analyst when P&G will revisit its long-term sales growth objective during the company’s earnings call Friday, chairman and chief executive officer A.G. Lafley said, “My question would be what’s long term? Frankly, we’re focused like a laser on today and next week.” He continued that the company is navigating through what looks to be a global recession, and P&G plans to be realistic in its objectives. “We’re in a very uncertain and volatile period” that’s going to take months to sort out, said Lafley, adding, “The first building block of our growth is market growth.”
For the first half, net earnings gained 31.5 percent to $8.35 billion, or $2.61 a diluted share, from $6.35 billion, or $1.90 a share, a year earlier. Net sales gained 2.7 percent to $41.95 billion from $40.84 billion.
In the second quarter, beauty net sales declined 4 percent to $4.93 billion, with price increases partially offsetting a 1 percent drop in volume. Grooming sales decreased 7 percent to $2 billion, with organic sales ticking up 1 percent.
In Beauty, retail hair care had low-single-digit gains, driven by Head & Shoulders, Herbal Essences, Rejoice and Nice ‘N Easy. Conversely, professional hair care had a midsingle digit decline; skin care a midsingle digit decline, due in large part to the divestiture of Noxzema, and prestige fragrance a high-single digit decline as a result of inventory reductions by retailers.
Lafley said the company likely has not seen the end of inventory cutting, suggesting that retailers need to strike a balance between in-stock and service levels.
“We already know some [retail] customers have pushed [inventory levels] too low. The smart retailers won’t let the inventory level get pushed too low,” he said.
Referring to emerging consumer shopping patterns, Lafley said, “Clearly people have backed off in the fragrance market. The good news is we’ve gained share….We know that women are stretching out salon visits. Some are not going.”
Asked about its skin care business, which includes Olay in mass and SKII in prestige, Lafley reaffirmed P&G’s trade-up, trade-down strategy, saying, “We’ve been on a crusade for a decade to democratize beauty and make the best products available to all women.”
Despite macro challenges, Lafley said P&G has maintained its marketing and advertising spending. “Advertising markets are softening. For the same dollar we’re delivering more. We are actually improving our share of voice,” the ceo commented. He acknowledged that P&G is shifting support, in general, to the store and the point of purchase. Those efforts include coupons and digital media. “We calculate the return on investment,” said Lafley, and move marketing dollars around accordingly.
Chief financial officer Jon Moeller said P&G will amplify the value message to consumers “on air, on package and in the store,” while maintaining its investment in innovation.
Lafley told analysts, “We expect the environment will remain difficult and highly volatile — at least in the near term. We are focused on the fundamentals that are critical to success in our business. We will continue to build brands that deliver better value for consumers by leading innovation and managing cost and productivity programs with discipline. Our efforts in these areas give me confidence that P&G will continue to grow profitably and generate attractive returns for shareholders over the long term.”