P&G Accelerates Media Spending as U.S. Sales Rebound

Global Cost Cuts Include Agency and Production Expenses

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Procter & Gamble Co. is hiking media spending, particularly in North America, and seeing some encouraging results, as a rebound in U.S. sales helped the company deliver better-than-expected organic sales and profit growth last quarter.

Jon Moeller
Jon Moeller Credit: P&G

The moves come despite currency devaluation and other economic turmoil in developing markets that pummeled P&G's top and bottom lines in absolute terms, driving overall sales down 9% to $16.9 billion for the fiscal second quarter ended Dec. 31. P&G handily beat analyst expectations for net core earnings per share, which factors out various restructuring effects. That beat came on cost cutting, including agency and production costs, which is expected to save the company $200 million this year.

But some of those savings are being redirected into media. Speaking on a conference call with reporters Tuesday, P&G Chief Financial Officer Jon Moeller said media spending as a percent of sales rose around 0.2 percentage points companywide, or around $30 million, last quarter.

P&G media budgets have risen around 1% as a share of sales in North America so far this fiscal year, he said. That amounts to an additional $130 million to $140 million in spending. And for the balance of the fiscal year, P&G expects global media spending will rise 10% to 15%, he said, "depending on the quarter."

Most of the North American increase occurred "relatively recently," Mr. Moeller said, speaking later on a conference call with analysts. "That's driven both by our encouragement from a response standpoint to the spending that we have in the market and the acceleration of growth, particularly in the U.S."

P&G U.S. sales rose 3% last quarter, excluding divestiture effects, he said, compared to a 2% decline the prior quarter. About 1% of that growth came from shipments of new products to retailers, including Gillette ProShield razor cartridges with lubricating strips on both sides. P&G is counting on that, a new line of Tide and Downy products to eliminate odors from athletic wear, and a new weightless conditioner from Pantene to help drive U.S. sales starting this quarter.

U.S. unit volumes were up 2% last quarter, but developing-market volumes plunged 6% as P&G raised prices to compensate for currency devaluation, helping push the company's overall organic volume, excluding divestitures, down 2%.

Last quarter was the first under new CEO David Taylor, who assumed the post in November. He stuck with the practice of prior CEO, now executive Chairman A.G. Lafley in not participating in quarterly earnings calls.

P&G competitors reporting in euros, pounds and yen have far less currency impact, since their currencies have weakened against the dollar and risen more slowly than the dollar against developing-market currencies, Mr. Moeller said. So they're not under pressure to raise prices as much.

Still, both Unilever, which reports in euros, and Kimberly-Clark Corp., which reports in dollars, beat P&G's quarterly top-line results handily last quarter, both with organic sales growth of around 5%.

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