P&G Vows More Change Coming After $4.2 Billion Acquisition

(Bloomberg) -- Fresh off the news of a $4.2 billion acquisition of Merck KGaA’s consumer unit, Procter & Gamble Co. reported higher sales and said more change is on the way -- but stock trading suggests Wall Street remains skeptical.

P&G shares declined more than 4 percent on Thursday as investors hungry for deeper change shrugged off higher revenue in the latest quarter. The company is still under pressure to produce growth after a protracted period of contraction. It’s betting that the vitamins and decongestants obtained in the purchase of Merck’s unit will hasten its comeback.

“Organic sales growth was likely still below what investors were looking for,” Bonnie Herzog, an analyst at Wells Fargo Securities LLC, said in a report.

With leading brands like Pampers and Pantene, P&G remains the largest consumer-products company. But board member Nelson Peltz and other investors have urged it to confront shifting tastes and shopping habits more aggressively as younger consumers gravitate toward newer and natural brands. Chief Executive Officer David Taylor has responded by buying new businesses and introducing greener versions of existing products like its new Pampers Pure Protection line.

During a call with investors, Taylor said the changes underway will accelerate growth and predicted that price trends -- an area of concern for analysts -- will turn positive in the next fiscal year.

“It is not business as usual,” he said. “We’ll continue to make changes as needed.”

Third-quarter adjusted earnings rose to $1 a share, the Cincinnati-based company said. That beat the 98-cent average analysts surveyed by Bloomberg had been expecting. Organic sales rose 1 percent, with beauty delivering the strongest performance.

New Portfolio

The acquisition of Merck’s consumer-health business, announced earlier, gives the maker of Crest toothpaste a stable of products with sales growth of 6 percent in the past two years, double the pace of traditional consumer goods. It will also improve P&G’s geographic scale, the company said.

The deal represents “a step in the right direction for P&G,” said Deborah Aitken, an analyst with Bloomberg Intelligence.

The need for change has intensified since Peltz joined the board in March after a months-long challenge for a seat. He has advocated for a more radical approach to boost market share and profit: He suggested breaking P&G into three self-governing units and implement deeper cost cuts than the billions already completed and in progress.

P&G and Teva Pharmaceutical Industries also said they have agreed to end the PGT Healthcare partnership that they established in 2011 to market over-the-counter medicines.

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