(Bloomberg) -- Procter & Gamble Co.’s plodding comeback is frustrating investors.
The company reported second-quarter profit that topped analysts’ estimates, providing evidence that its turnaround is progressing. But activist shareholder Nelson Peltz and like-minded investors clearly still need more convincing. They sent the stock on its worst tumble in three months following the results, a sign that the drumbeat for more radical changes will continue.
Sales at the world’s largest consumer-products company were essentially in line with Wall Street estimates, and product categories like razors and baby care remain in a slump. Growth also has largely been volume-driven, while investors would like to see more signs that the company is able to command price increases, said Bloomberg Intelligence analyst Deborah Aitken.
P&G is “still very much in transition phase,” she said.
The company has faced other hurdles in recent months, including the social-media scourge known as the Tide Pod Challenge -- a phenomenon that has teens taunting one another to consume packets of P&G laundry detergent. Chief Executive Officer David Taylor issued a warning about the practice on Monday, and the company released a public service announcement featuring New England Patriots tight end Rob Gronkowski.
P&G’s biggest challenge is proving that it can remain relevant in an era of niche consumer brands and Amazon.com orders. That was the backdrop of a drawn-out proxy battle last year between the company and Peltz, who called for the addition of new brands and a drastically simplified corporate structure. After a dispute over whether Peltz won enough votes to be elected, P&G agreed to add him to the board in December.
Both sides have agreed on the need to recapture the shoppers who have been lured away by upstart and private-label consumer products. But it’s not yet clear how.
“It just seems like it’s been a very, very slow process,” said Brittany Weissman, an analyst at Edward Jones & Co.
The stock fell as much as 3.5 percent to $88.65 on Tuesday, marking the biggest intraday drop since Oct. 20. The shares had been little changed this year through Monday’s close.
“The sales environment is challenging; it’s not just for them,” Weissman said.
That was evident when fellow consumer-products giant Kimberly-Clark Corp., which is also working on a painful reinvention, reported its fourth-quarter results. The maker of Kleenex and Huggies said on Tuesday that it was slashing as much as 13 percent of its workforce in an attempt to cut manufacturing costs.
Both P&G and Kimberly-Clark are facing a new influx of private-brand diapers, Weissman said.
The good news for P&G was profit growth. The company, which makes Head & Shoulders shampoo, Crest toothpaste and Gillette razors, posted an earnings gain of 10 percent to $1.19 a share, excluding some items. That was well ahead of the $1.14 projected by Wall Street.
But organic revenue -- stripping out currency effects and other factors -- grew more modestly, at 2 percent. The company reported revenue of $17.4 billion in the period, which ended Dec. 31. That compared with a $17.39 billion average prediction.
The once-ailing beauty division saw the biggest bounce, with a 9 percent organic sales gain -- helped by new Olay skin-care products and the luxury-priced SK-II brand. Premium-priced items such as new Oral-B toothbrushes also contributed to a 4 percent gain in the health-care category.
Sales in grooming, on the other hand, where the Gillette brand has been hit by cheaper startups, fell 3 percent. That was expected, but a 1 percent decline in the baby and family-care unit was more of a surprise, Weissman said. Investors want “to see some stabilization in those businesses.”
P&G raised the top of its annual forecast range for core earnings by a percentage point, aiming for a 5 percent to 8 percent gain. That was up from 5 percent to 7 percent earlier. But the change was driven by lower taxes, rather than its operations, said Aitken at Bloomberg Intelligence.
Shareholders are still waiting for more payoff from product innovation, which should help the company charge more for its wares.
“This is not yet evident,” she said.
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