Procter & Gamble beats expectations again amid media hikes and agency cuts

Procter & Gamble Co. posted its second straight quarter of 7 percent organic sales growth for its fiscal first quarter today amid continuing cuts in agency and other creative costs, but with a significant hike in media spending. P&G beat analyst expectations by two percentage points on the top line and 13 cents in adjusted earnings per share, continuing a streak of upside surprises. A rising tide (Fabric and Home Care sales rose 8 percent) won’t lift agency boats, however. P&G also continued its streak of belt-tightening to open a new fiscal year, with savings in marketing (mainly agency and production fees) plus overhead costs totaling 0.7 percentage points as a share of sales. That amounts to around $125 million, similar to the year-ago quarter, albeit only half the pace of the budget squeeze from the prior quarter. But P&G also reported around $214 million of “marketing reinvestment”—primarily media spending—amounting to 1.2 percent of its $17.8 billion in quarterly sales. It’s the second consecutive quarter where P&G’s increased media spending outstripped savings from agency, creative production and overhead costs. “Ad spending in total was up around 9 percent,” Co-Chairman and Chief Financial Officer Jon Moeller said on a media briefing call. So even in a quarter when P&G sales rose 7 percent in absolute and organic terms (excluding currency, acquisition and divestiture effects) and creative costs were cut, net ad spending as a share of sales rose around 0.2 percentage points, or $35 million. Almost every part of P&G saw strong growth, led by 10 percent organic sales growth for beauty, though the Gillette shave care business was flat, which P&G blamed on fewer men shaving and stronger competitive activity. The quarter's sales growth was inflated by about 0.4 percentage points from retailers buying inventory in Japan, ahead of a planned increase in value-added tax. If there’s a global economic slowdown, it hasn’t affected P&G’s business yet, as Moeller on an investor call reported faster category growth in the U.S. and a 13 percent sales increase for the company in China.

Procter & Gamble beats expectations again amid media hikes and agency cuts

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