P&G Shows Signs of Reviving Sales Growth With Slimdown Over

(Bloomberg) -- Procter & Gamble Co., which has spent years paring down its sprawling consumer-products empire, is finally returning to growth mode.

Organic sales  -- a measure that excludes the effects of currency exchange-rate fluctuations as well as acquisitions and divestitures -- rose in all five of P&G’s product divisions units last quarter, leading to a 3 percent gain companywide. And while total revenue still fell, it was the smallest decrease since 2014.

The results signal that P&G’s strategy of divesting nonessential brands to focus on its main household and personal-care businesses is starting to pay off. The company completed the sale of more than 40 beauty brands to Coty Inc. this month, a move that Chief Executive Officer David Taylor called “the last major step” in P&G’s transformation of its portfolio. 

“Now that that endeavor has wrapped, you’ll see their innovation efforts more focused, with the intent of being more responsive on a timely basis,” said Erin Lash, an analyst at Morningstar Inc.

Tuesday’s results show the efforts are gaining traction.

Profit was $1.03 a share, excluding some items, in P&G’s fiscal first quarter, which ended Sept. 30. Analysts estimated 98 cents, on average. Revenue slipped less than 0.1 percent to $16.5 billion, Cincinnati-based P&G said in a statement. That roughly matched analysts’ projections.

The stock rose as much as 4.7 percent to $88.08 in New York, the biggest intraday increase in a year. P&G already had gained 5.9 percent this year through Monday.

Organic sales advanced 3 percent in the grooming business, which includes Gillette shaving products. Sales by that measure climbed 3 percent in the beauty unit, which sells Pantene shampoo and Olay skincare products. The health care division, the maker of Crest toothpaste and Prilosec heartburn medicine, had the biggest organic sales increase at 7 percent.

The fabric and home care unit posted a 4 percent organic sales gain, while the baby, feminine and family care business had a 2 percent advance.

Volume Gains

The companywide organic sales increase of 3 percent topped analysts’ consensus expectation of a 2 percent gain, Mark Astrachan, an analyst at Stifel Financial Corp., said in a note. Sales volumes rose 3 percent, marking the strongest performance since the third quarter of 2014, he said. He recommends buying the shares.

P&G maintained its forecasts that organic sales would grow about 2 percent and adjusted earnings would increase at a mid-single-digit percentage rate in its current fiscal year.

The company’s shrinking goes beyond divestments. Taylor has embarked on another $10 billion cost-cutting program -- the company’s second in five years -- and says he’ll invest some of the savings in research, development and marketing.

Some of its efforts already paying off, Lash said. P&G’s single-load laundry detergents have been a success, as have the expanded sizes of its Pampers Swaddlers brand, which helped it overtake Kimberly-Clark Corp. -- the maker of Huggies -- in U.S. diaper market share.

On Monday, Kimberly-Clark reported earnings that trailed analysts’ estimates and cut its annual sales forecast, with CEO Thomas Falk citing “a more challenging economic and competitive environment.”

All big consumer-products companies are in a tough spot, with new competitors, stagnant demand in developed markets and slowing growth in developing ones, Lash said.

“That is ultimately another reason why continuing to invest behind that product innovation is so crucial,” she said.

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net. To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Kevin Orland