Procter & Gamble profits slide despite jump in sales

By Simon Pitman

- Last updated on GMT

Related tags: Marketing, Organic growth

First quarter profits were down for the global consumer products company as it was hit by price discounting and added promotional expenses to support new product launches.

The fall in profits came despite the fact that sales for the period were up by 7 per cent to $19.8bn, which represented a rise of 4 per cent in organic terms, factoring in the negative impact of currency exchanges.

This figure was slightly below analyst’s expectations. In a poll conducted by FactSet Research a number of analysts had on average predicted sales to increase to $19.5bn.

Net profits were down 1 per cent to €2.59bn, compared to $2.61bn in the first quarter of 2009. The company attributed the slip to the added expense of a raft of new product launches and price discounting – all aimed at winning back consumers.

Winning back the consumers

During the tough retail climate experienced in late 2008 and throughout 2009, many consumers abandoned Procter & Gamble branded products in favour of cheaper priced brands, particularly private label.

In an attempt to win back consumers the company had a major drive towards new launches supported by media campaigns, which helped to boost sales volume growth across all regions, as well as five of its six business divisions.

As a result, the company’s mainstay beauty and grooming division saw sales increase by 6 per cent during the quarter, to $4.6bn, on volume growth of 4 per cent and organic sales growth of 2 per cent.

Lower pricing of personal care products impacted the organic sales figure by approximately 1 per cent.

Sales for the division were powered by double-digit volume growth in developing markets but this was counterbalanced by the fact that pricing in these markets was below average market values.

Grooming boosted by acquisitions

Grooming net sales grew 11 per cent for the quarter to $1.8bn, which represented a gain of 6 per cent in volume and 4 per cent in organic terms.

The gains in grooming were driven by the higher volumes largely attributed to the recently acquired Zirh brand, but were negatively impacted by product mix.

CEO Bob McDonald was bullish about the results, making references to the strong volume growth and the fact that product innovation has been supported by big promotional campaigns.

However, investors’ reaction to the results was less positive, with share prices on the New York Stock Exchange closing down 1.5 per cent yesterday, at $62.20 per share.

The company says that foreign exchange is not likely to have a significant impact on earnings in the course of 2010, although during the second quarter there is likely to be a positive impact of around 2 percent.

Organic sales are expected to grow by four to five per cent in the second quarter, a figure that will mainly be impacted by acquisitions made during the course of the last year.

Related topics: Business & Financial

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