P&G Beats Sales Target While Restraining Ad Spending Growth

Enters War of Words Over Pricing With Rival Unilever

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Procter & Gamble Co. modestly beat top-line expectations last quarter while growing marketing spending more slowly than sales. It also entered a new war of words with Unilever over whether P&G cut prices during a quarter when it beat its arch-rival in quarterly organic sales growth for the first time in several years.

P&G's organic sales grew 4%, vs. the company's 3.6% projection, to $21.2 billion for its fiscal first quarter, the company reported Friday. Core earnings per share, excluding restructuring and other costs the company deems non-recurring, fell 1%, though P&G Chief Financial Officer Jon Moeller said core EPS grew 8% on a currency-adjusted basis.

Jon Moeller
Jon Moeller

Marketing costs, which P&G didn't break out, rose more slowly than sales, a trend Mr. Moeller said on a conference call with reporters would continue the rest of the year.

"We expect advertising spending to be up year-on-year but to grow a little bit less than sales growth as we get more efficient and more effective," Mr. Moeller said, citing efficiencies on "non-media, non-advertising" expenses and other items that deliver higher return on investment. Mr. Moeller said he's "even more comfortable than I have been historically on the effectiveness of that spend."

P&G did not shift money on price and promotion in the U.S., Mr. Moeller indicated, in a retort to comments by Unilever CEO Paul Polman in a quarterly sales update yesterday. Unilever reported organic sales growth a 3.2% gain, its weakest in years, which he blamed in large part on more aggressive pricing by an unnamed competitor in the U.S. Mr. Polman said "promotional intensity is now extremely high in categories like hair and deodorants," though he said Unilever is still growing share in U.S. personal care "albeit at a reduced rate," and waiting to see how it would respond to one competitor "determined to rebuild their shares in the U.S. at an enormous cost." It's widely believed he was referring to P&G.

Mr. Moeller said on the media call that P&G's percentage of volume that moved on promotion was down 7 percentage points last quarter from the prior year, "so we see a different reality." Globally, he said, P&G's pricing was flat for the quarter.

"We would much rather invest a dollar in innovation or equity, which are proprietary and have sustainable advantage, than we would in promotion or price discounting, of which there's nothing proprietary and where the results typically are not sustainable," Mr. Moeller said.

Nielsen data from Sanford C. Bernstein show P&G's prices in deodorant actually rose 3% to 6.6% during 12 weeks reported last quarter. On a call with analysts, Mr. Moeller attributed share growth in the category in part to Secret's advertising claiming superiority in fighting "stress sweat."

P&G's shampoo prices did decline 0.7% to 4.2% during the quarter, however, according to the Nielsen data, and prices overall fell 0.6% to 1.4% in P&G's beauty business. For the company as a whole, prices ranged from down 0.5% to up 1.1% during the quarter.

Overall, P&G's U.S. sales rose 2% last quarter, Mr. Moeller said, which allayed concerns that the gap between 7% shipment growth and roughly 2% growth in measured retail sales would be paid for by a slowdown in reported P&G sales this quarter.

P&G's beauty sales globally were up only 1%, while the company's better overall results were carried by fabric, home care, baby care, feminine care and tissue towel businesses, which rose 6%. Mr. Moeller said sales growth in the health care division was wiped out by product recalls in the pet food business, but said production is coming back online.

In developing markets, where Unilever's top line took a hit from slowing growth, P&G also noted the slowdown, but still performed better; its developing-market sales were up 8% vs. Unilever's reported 5.9% growth.

"We feel innovation has just as strong a place in developing markets as it has in developed markets," Mr. Moeller said, "and I think consumers are responding to that."

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