P&G reports weak sales growth due to lower demand for beauty products

Procter & Gamble Co. posted sluggish sales growth for the second straight quarter, hurt by minimal price increases and weakness in key areas such as skin and baby care.

Organic sales, a measure that strips out items such as currency volatility, rose 2 percent in the fiscal first quarter ended Sept. 30, P&G said Friday. Analysts had forecast an increase of almost 2.1 percent. P&G’s prices rose an average of 1 percent during the period – the same as the previous quarter and well below last year’s increases.

A surprise decline in the company’s beauty category was driven by skin care, which saw a sharp decline in sales and lower volume due to weakness in its premium SK-II brand sold in China. This was partially offset by P&G’s fabric and home care category, including Tide detergent, which exceeded expectations at higher volumes.

Adjusted for the fact that the stock is trading without a dividend payout on Friday, P&G shares fell 0.8 percent before the U.S. stock market opened. The stock has gained 18 percent this year through Thursday, while the S&P 500 index has gained 22 percent.

The results show some stabilization from the previous quarter, when growth fell well short of Wall Street’s expectations. The company reiterated its sales and earnings targets, including organic sales growth of up to 5 percent, for the current fiscal year and indicated that it expects growth to accelerate in the coming quarters.

“It’s a comparatively weaker quarter in terms of sales,” Chief Financial Officer Andre Schulten said in an interview, adding that weakness in China and the Middle East weighed on results. The war in the Middle East has sparked boycotts and hurt consumption, while in China consumer confidence has fallen. “Those two are really the headwinds here, but the core of the business is strong,” Schulten said.

Nonetheless, it is the latest sign that it will be difficult for P&G to return to the faster expansion rates of recent years, while highlighting that China remains a major hurdle for consumer goods makers.

P&G has tried to boost performance with premium products like full-body deodorants and razors for different areas of the body, with new items and features allowing more flexibility at higher prices. Schulten said more expensive items like Oral-B’s electric toothbrushes are performing well and P&G is introducing a new, cheaper version to appeal to more consumers.

First-quarter adjusted gross margin, a measure of profitability, was in line with estimates despite unfavorable raw material costs.

Although price increases have slowed significantly, Schulten said he doesn’t expect them to go down. “There is no cost development that would justify a deflationary adjustment for us or the industry,” he said.

In the baby care category, volumes fell in the quarter. While the company recently launched an improved version of its Luvs baby diapers, Schulten said it’s still too early to measure the results. The new version, called Platinum, is advertised as being softer and more absorbent.

In China, P&G is trying to target people more specifically with advertising. In addition to skin care, P&G also reported other softness areas in China, including oral care.

“Consumer sentiment is still very negative,” Schulten said of China, adding that “net worth is heavily tied to the stock market and the real estate market. They are being very careful with their spending.”

By Leslie Patton

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