P&G Posts 2% Organic Sales Growth in First Quarter

Company Hopes to Return to 4%-6% Growth Later in Year, Says Spending Will Rise in Spring

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BATAVIA, Ohio (AdAge.com) -- Procter & Gamble Co. returned to organic sales growth a quarter ahead of projections, and executives signaled they're mostly through cutting prices as they prepare to ramp up marketing spending in the first half of calendar 2010.

Robert McDonald
Robert McDonald Credit: P&G
P&G's results for its fiscal first quarter, which included 2% organic sales growth to $19.8 billion, pleased investors, who sent shares up nearly 4% in midday trading.

But they were strong mainly in comparison to a bar that had been set very low due to a 2% organic sales decline the prior quarter and forecast of flat to negative 2% sales growth for last quarter. P&G still came in below growth of all but one major competitor to report quarterly results so far, Johnson & Johnson, and well below the 7% organic sales growth reported by Reckitt Benckiser, Colgate-Palmolive Co. and Avon Products, as well as a surprisingly strong 3.5% growth in U.S. gross domestic product.

P&G's sales results this quarter also remained below its long-term target of 4%-6% growth, though they create hope of a return to those levels during the balance of the year. CEO Robert McDonald said the company's innovation program is weighted toward the back half of its fiscal year (January through June) and that marketing spending will rise accordingly, particularly in the spring.

There was also good news from a beauty business that had been a company laggard for two years. It came in at 2% organic growth, though that doesn't include grooming, including Gillette razors, which slipped 2%.

Any fears that P&G would cut prices further to rekindle growth are receding, too. Chief Financial Officer Jon Moeller said the company made all of its planned pricing adjustments, covering about 10% of the business, last quarter, though many only took effect this month.

Asked how P&G would "spend back" an estimated $2 billion to $2.5 billion in reported sales likely to come from a dollar that weakened dramatically last quarter, Mr. McDonald said, "I don't really like the term 'spend back,' because it sounds like there's some kind of price competition to buy the consumer's willingness to use our products. I would rather think about it as supporting the innovations that we put in the market. ... In terms of marketing spend, it could be something like ... sampling, or it could be something like a multi-brand commercial innovation, or it could be something like our Pampers UNICEF program where we support the eradication of neonatal tetanus."

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