P&G Sinks as Company Seeks Upgrades for Grooming, Baby Care

(Bloomberg) -- Procter & Gamble Co. reported brisk sales last quarter as consumers paid more for high-end beauty products and home-care goods -- but some lower-priced parts of its business lagged.

While most ares of the company performed well, two segments were outliers: baby care and grooming, which includes Gillette. In these categories, P&G aims to reverse the trend by introducing new products.

P&G Sinks as Company Seeks Upgrades for Grooming, Baby Care

“In both businesses, we’ve been less than superior in the bottom tiers of the market,” Chief Financial Officer Jon Moeller said on a conference call. “We’re doing well on the high end and need to improve competitiveness at the low end of the market.”

Gillette’s SkinGuard sensitive shave line had “some real strength behind it” in Europe, Moeller said, but it needed more investment in the U.S. Overall, he said, the company is continuing to “constructively disrupt” the consumer-products industry.

P&G’s organic sales, which exclude items like acquisitions and currency effects, rose 5 percent in the company’s fiscal third quarter that ended in March. P&G revised its organic growth guidance for this year to “a solid 4 percent” -- up from a previous range of 2 percent to 4 percent. There was strong growth in its two biggest markets, the U.S., and China, P&G said.

Higher prices in many categories, largely implemented to offset foreign currency pressures, helped fuel gains. This reinforces that consumers are willing to pay more, as Kimberly-Clark Corp., PepsiCo Inc. and Nestle SA have also reported success with price increases.

Moeller said there have been some small volume declines as a result of higher prices, but in general, it’s going well.

“We tried to take pricing in smart ways,” he said, combining it with innovation in a way that appeals to consumers and retailers. The market is more confident now when it comes to price hikes, he said, referring to Kimberly-Clark’s results earlier this week.

Tough Comparisons

Despite the strong quarter, analysts questioned whether tough comparisons lay ahead given this year’s one-time boost from a land sale and strong share gains in recent months. Also, foreign-exchange costs and commodity costs will continue to be an issue, with the company forecasting these factors to crimp sales by $1.4 billion this year, after taxes.

P&G shares fell as much as 3.3 percent to $102.55 in New York trading -- the most intraday in a month. The stock had advanced 15 percent this year through Monday’s close, just short of the S&P 500 Index’s gain.

P&G’s wide range for its profit guidance -- the company sees earnings per share rising between 3 percent and 8 percent this year -- was another issue. Wells Fargo analyst Bonnie Herzog said the range “might cause some worries and needs some explanation.”

New Strategy

Under Chief Executive Officer David Taylor, Cincinnati-based P&G has embarked on a multipronged strategy to simplify its sprawling corporate structure and speed the arrival of new products. The company is responding to decreased consumer brand loyalty, which has helped newer products gain market share in recent years.

The company’s beauty division continued its strong performance, with a big boost from its SK-II skin-care line. Organic sales of beauty products climbed 9 percent last quarter, a faster pace from three months earlier. The health-care business increased with the addition of Merck’s over-the-counter business, and the fabric and home-care unit also posted growth. Tide Pods did particularly well, the company said in its earnings release.

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