P&G regains sales momentum, but pricing is still an issue

Key Points
  • P&G is showing recovery after its organic sales in the U.S. slowed.
  • It saw its strongest sales growth in beauty, which jumped 9 percent, and health care, which jumped 4 percent.
  • The company said it is still coping with intensifying retail competition.
Procter & Gamble's Tide
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Procter & Gamble beat expectations on both the top and bottom line in its second quarter of 2018, showing recovery after organic sales lost steam in the first quarter of its fiscal year.

But the company still found itself victim to the intensifying retail landscape, which contributed to declines in both its diaper and Gillette shaving business.

P&G backed its sales forecast for the year but raised its estimate for core earnings per share growth for fiscal 2018 to a range of 5 percent to 8 percent from a prior range of 5 percent to 7 percent.

Shares were down 1.28 percent in premarket trading.

Here's how P&G did compared with what Wall Street expected:

  • EPS: $1.19 vs. $1.14 expected according to Thomson Reuters
  • Revenue: $17.40 billion vs. $17.39 billion expected according to Thomson Reuters

"We accelerated organic sales growth and delivered strong productivity cost savings and cash flow," said David Taylor, P&G's chairman and CEO.

Total net sales for the quarter were $17.4 billion, a 3 percent increase over the year prior. Reported gross margin, though, decreased 60 basis points.

As competition amid retailers intensifies in the U.S., they are putting increasing pressure on products manufacturers. P&G told analysts on Tuesday it is still coping with retailers buying less inventory and discounting products, which has impacted its sales.

"There continues to be significant retail competition [in the U.S.] which is forcing prices down to consumers," the company told analysts. "While that doesn't change the price that we necessarily sell products through to these retail channels, it starts driving price points in the marketplace."

Net sales in P&G's grooming business, which includes Gillette shaving, dropped 3 percent. Within the segment, shave care dropped at a mid-single-digit pace, still an improvement over last quarter, when net sales of the business fell 5 percent.

Sales in its baby, feminine and family care business, which includes Pampers diapers, dropped 1 percent. The business is pressured more broadly as the U.S. birth rate declines.

Kimberly-Clark, which competes with P&G in diapers and paper towels, on Tuesday announced it is slashing about 13 percent of its workforce globally in a bid to cut costs as sales wane. In an interview with The Wall Street Journal, CEO Tom Falk pointed to P&G's price-cutting to regain sales as part of the industry's challenge.

P&G saw its strongest sales growth in beauty, which jumped 9 percent, and health care, which jumped 4 percent. Within health care, its oral care sales growth clocked in at the low single digits and its personal health care jumped high single digits. The Vicks owner said the latter was driven in part by an early and intense cold season.

P&G said the recent change in U.S. tax law resulted in a net benefit of roughly $135 million in the latest period. It expects that to continue for fiscal 2018 and increase in the future.

It also took a provisional net charge of $628 million for the quarter, due to the new tax law.

Core earnings per share, which excludes certain items such as the temporary impact of the tax law, were $1.19, an increase of 10 percent versus the prior year. P&G attributed this increase to a jump in net sales and a lower core effective tax rate.