P&G Results Disappoint Wall Street

Marketer's 5% Organic Sales Growth Lags That of Rivals

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BATAVIA, Ohio (AdAge.com) -- Procter & Gamble Co. may have hit its own expectations and those of many analysts, but it disappointed Wall Street broadly by reporting fiscal first-quarter organic sales growth of 5% today, below that of key competitors who've reported so far.

P&G shares were off as much as 5% to $68.23 in early-morning trading, though that was a drop from a strong run-up of more than 14% since early August.

P&G's beauty business had organic sales growth of 4%, dragging down overall company results. The unit, in fact, lagged Pringles and Folgers -- the subject of considerable divestiture speculation -- which both outperformed P&G's high-priority beauty unit on the top line last quarter. (P&G executives wouldn't confirm or deny the sale speculation.)

Struggles for Olay
Olay, long a major driver of P&G's skin-care growth, slowed to mid-single digits last quarter, though Chairman-CEO A.G. Lafley promised new product initiatives for the Regenerist and Definity lineups by early next year.

P&G marketing spending, which has been a subject of some scrutiny as the company's organic sales growth has slowed the past two years and the company redefined it, was up as a percent of sales last quarter, Mr. Lafley said on a conference call with analysts, though he didn't say by how much. "If we had it to do over again," he said, "it would have been up a bit more in beauty."

Beauty's organic growth last quarter matched that of P&G's snacks, coffee and pet business, even though the latter's results were pulled down by the continued impact of the March pet-food recall on Iams and Eukanuba.

P&G Treasurer Jon Moeller indicated the coffee and snacks businesses had organic sales growth of double digits behind product launches that included Dunkin Donuts supermarket coffee in the U.S. and Pringles Rice Infusion in Europe.

Sales up 7.5%
Overall, P&G posted sales up 7.5% to $20.2 billion, with three percentage points of growth coming from currency exchange. Earnings per share rose 16% to 92 cents, meeting analyst expectations even without a 2-cent benefit from tax reductions.

The fabric and home-care business and baby and family care (tissue and towels) groups led organic growth with 7% each.

Despite the relatively soft results in beauty and health care, which also had 4% organic growth, Chief Financial Officer Clayton Daley said P&G had actually picked up market share across all of those businesses, including in the U.S.

This despite P&G's chief beauty rival, L'Oreal, last week reporting global organic sales rose 7.7% last quarter -- roughly twice the rate of P&G beauty. Much smaller beauty rival Alberto-Culver Co. yesterday reported last quarter's organic sales up more than 10%. And Colgate-Palmolive Co. today reported last quarter's organic sales rose 6.5%.

P&G executives, however, joined L'Oreal's in noting some softness in the U.S. market, though Mr. Lafley said private-label shares were at historic lows. And he doesn't believe the U.S. consumer has lost the desire to trade up to better products.

Nor does he anticipate problems with consumers accepting a slew of P&G price increases, mostly driven by higher commodity costs, including a 5%-12% hike on Olay and Ivory cleansing products and a 5%-8% increase on Pampers diapers -- the latter of which has been matched by private-label brands and rival Kimberly-Clark Corp.
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