P&G ups profit but stocks tumble as sales disappoint

By Simon Pitman

- Last updated on GMT

Related tags: Cent, Business terms, Organic growth

Procter & Gamble has reported a 37 per cent jump in its
profits, but share prices fell after the company revealed that its
sales had failed to meet with expectations on the back of inventory
cut-backs by Wal-Mart and slower than expected sales in Asia and
Eastern Europe.

The company said that net sales grew a total of 21 per cent in the quarter ending 31 March, to stand at $17.25bn. However, this figure includes the inclusion of the newly acquired Gillette business, which helped to boost figures significantly.

The company reported that organic sales, which more accurately reflect the true growth, increased by 6 per cent.

News of the results, which were published last Thursday, met with concern from the financial world and stocks fell by four per cent in the first day of full trading following the publication of the results.

However, despite the reaction from the stock markets, the increased synergies brought about by the Gillette merger, combined with price increases and cost saving initiatives meant that net earnings increased by 37 per cent, to reach $2.21bn.

Breaking the sales figures down though, sales in the company's mainstay Beauty division have not performed as well as the its Family Health division.

P&G Beauty reported that net sales increased 6 per cent to reach $5.16 billion, while organic sales increased 5 per cent. The company said that this figure was primarily achieved through the addition of the Gillette Personal Care business, alongside solid organic volume growth.

The Olay brand was heralded as a key driver in the growth, which saw volumes in skin care sales increase well into double figures. However the company said that volumes in its cosmetics division decreased due to declines in its Max Factor brand sales in North America.

The company reported that net earnings for the Beauty division increased 10 per cent to reach $738bn, due mainly to a more profitable product mix and the solid organic growth in sales.

The Health Care division reported net sales growth of 21 per cent to reach $2.43bn, a figure that was boosted by the acquisition of Gillette's oral care business, while organic sales increased by 3 per cent.

Baby Care and Family care organic sales were up 3 per cent, while net sales were down 1 per cent to reach $3.03bn, impacted by negative foreign currency as well as disproportionate growth in mid-tier products and developing markets.

The company says that on the strength of its performance to date it believed it would be able to exceed original EPS expectations for the full year.

"The combination of strong topline momentum, improving gross margins and good progress on Gillette integration give us the confidence to raise our EPS outlook for the fiscal year,"​ said P&G chief executive A.G. Lafley.

Given the circumstances the company believes that it is now on track to deliver a fourth consecutive financial year of double digit EPS growth, with net sales set to increase by between 19 and 20 per cent.

Related topics: Business & Financial

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