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UPDATE 3-P&G's quarterly sales drag; Peltz still looms in board battle

(Updates with slump in shares, Breakingviews story)

Oct 20 (Reuters) - Procter & Gamble Co disappointed Wall Street with sales on Friday, a week after it claimed to have fought off hedge-fund manager Nelson Peltz's move to muscle onto the board and force more dramatic change at the consumer goods giant.

Net sales in the firm's first quarter results rose just 1 percent to $16.65 billion, missing analysts' expectations of $16.69 billion and knocking the Gillette razor maker's shares 3 percent lower soon after opening in New York.

The company has been trying to revive stagnant sales, one of the key issues Peltz had with P&G in his contentious and very public fight for a board seat, which preliminary results suggest he lost by a hair.

Peltz pushed for a re-organization that P&G said would lead to a break-up of the company and said P&G's "suffocating bureaucracy" was causing it to lose market share, especially at its more profitable businesses.

P&G argued that it whittled down its portfolio to 60 brands, many of them world-wide popular names, and lopped off several business units to streamline and Peltz's suggestions did not move the needle in terms of what the company was already doing.

At an annual general meeting earlier this month, preliminary votes showed that Peltz lost his bid by a slim margin. Peltz has said he would contest the vote and would not concede until an independent arbiter had certified the votes.

On Friday, P&G reported higher sales of beauty and home care products, but another weak performance in its grooming business eroded some of that growth.

Sales in the grooming business fell more than analysts' had anticipated despite P&G cutting prices on tough competition from upstarts like Dollar Shave Club.

"Grooming was especially weak," RBC Capital markets analyst Nik Modi said noting that the business had seen sales declines for three quarters and missed his own estimates of a 2 percent decline.

The company, however, said it was maintaining its full-year organic sales and adjusted profit forecast. But it also said it expects a $300 million hit from commodity costs related to the hurricanes that battered the southern U.S. this year.

Net income attributable to the company rose 5 percent to $2.85 billion or $1.06 per share in the first quarter ended Sept. 30.

The company saw a bright spot at sales in its beauty business, which rose 5 percent, on the rising demand of ultra-premium SK-II skincare products in China. Strong demand for Tide detergents and Febreze fragrances boosted sales at its Fabric and Home Care business by 2 percent.

Excluding items, the company earned $1.09 per share, beating analysts' average estimates by 1 cent.

(Reporting by Siddharth Cavale in Bengaluru; Editing by Bernard Orr and Patrick Graham)