Procter & Gamble’s best sales in a decade come despite drop in ad spending
Procter & Gamble on Tuesday delivered the best quarterly and fiscal-year sales growth it’s had in a decade, all while decreasing ad spending in absolute terms and as a share of sales.
That doesn’t support dire rumblings from agency executives that P&G’s relentless cost-cutting efforts of recent years would come back to bite the company. But there may still be some silver lining for the broader industry: The world’s biggest spender did increase marketing spending—mainly on media—faster than it cut spending on creative fees and company overhead last quarter.
In a media conference call, Chief Financial Officer and Co-Chairman Jon Moeller indicated he expects last quarter’s spending trends to continue in the new fiscal year in the wake of P&G’s recent strength.
P&G had organic sales growth of 7 percent last quarter, excluding currency, acquisition and divestiture effects. That pace doubled global rival Unilever’s 3.5 percent growth, and beat competitors Kimberly-Clark Corp. (5 percent) and Colgate-Palmolive Co. (4 percent). The whole industry benefited from price hikes to recoup prior commodity and transportation cost increases as well as foreign currency devaluation.
That price hikes are going through without significant competitive or retailer blowback so far creates margin cushion for P&G to hike marketing spending in the months ahead. Competitors such as K-C and Colgate have already indicated a willingness to sacrifice some of that margin to better support marketing efforts in quarters to come.
P&G reported savings in marketing outlays and overhead of around $240 million (1.4 percent of sales) last quarter, but increased overall “marketing reinvestment” by around $290 million (1.7 percent of sales).
Moeller said ad spending still fell in absolute terms for the full year. But he added, “The strength of our program is up vs. a year ago,” as P&G cut out excess frequency of ads targeting the same people while increasing reach.
“You can see the effect of the program obviously in the top-line growth,” Moeller said. “And you can expect that trend to continue into next year.”
Chairman-CEO David Taylor expanded on what he believed worked for P&G’s marketing in a conference call with analysts later.
“We’ve increased advertising that makes you think, talk, laugh, cry, smile, share and, of course, buy; advertising that drives growth for categories and brands; advertising that clears the highest bar for creative brilliance, sparking conversations, affecting attitudes, changing behavior and sometimes even defining popular culture,” Taylor said.
He pointed to Tide’s Grand Effie and P&G’s honor as most effective marketer at the Effies in May. He also pointed to P&G winning 16 Lions at Cannes in June along with announcing a series of creative partnerships outside traditional agency or media deals with the likes of John Legend, Arianna Huffington and Katie Couric and others.
Taylor also credited P&G’s first-party database of more than a billion consumers globally and move from “generic demographic targets like women 18-49” to 350 “smart audiences” such as first-time moms and first-time washing machine owners.
He conceded that while sales were strong for P&G and competitors last quarter, retailer and competitor responses are likely to mean P&G needs more “productivity gains” in the year ahead to finance increased marketing and promotion to cover “both retailer needs for value improvement” and “elevated competitor action.”
Despite the strong top-line—up 5 percent organically for the full year—P&G recorded a net loss of $2.12 per share, due largely to an $8 billion non-cash writedown of the value of the Gillette shave business. P&G said that move reflected—in order of impact—currency devaluations, a long-term trend toward men shaving less in developed countries, and increased price-focused competition over the 14 years since P&G acquired the business in a $57 billion deal.
P&G’s grooming business did grow organic sales 4 percent last quarter, albeit the slowest in a business that saw 5-percent to 10-percent increases elsewhere. Taylor and Moeller reiterated that P&G remains committed to Gillette, which they said has shown improved results of late on a variety of innovations across price levels.
Excluding the Gillette charge and other factors P&G describes as one time or “non-core” issues, earnings per share increased 17 percent to $1.10 for the fiscal year. P&G beat analyst expectations for sales and earnings for both the quarter and year.