P&G profits dip, outlook for coming quarter is challenging

By Simon Pitman

- Last updated on GMT

Related tags Net sales United states dollar Currency Organic growth

P&G profits dip, outlook for coming quarter is challenging
P&G first quarter profits were slightly down on higher commodity costs despite sales taking a big leap, but the outlook is more challenging as currency gains are expected to be wiped out.

The personal care giant said that sales during the quarter grew by 9 percent to reach $21.9bn, which represented organic growth of 4 percent, a figure that was largely accounted for by favourable currency exchange rates against a weak US dollar.

Net profits dipped from $3.08bn in the corresponding quarter last year, to $3.01bn for the current quarter. This figure was largely in line with the company’s forecasts and analysts’ expectations, and was impacted by the combination of rising commodity costs and lower gross margins.

Developing markets continue to steal the show

The company said that on a geographical basis the sales results were underlined by mid-single-digit growth in developing regions partially offset by a low single-digit decrease in developed regions, specifically the US and Europe markets.

The figures were driven by specific launches and promotions globally, including Pantene treatments in Asia, Olay Pro-X Clear in North America, fragrances in Prestige such as Gucci Guilty; and market expansions, such as Oral-B in Western Europe and ProGlide in Asia.

Beauty net sales increased by 9 percent to $5.4bn, while organic sales grew by 4 percent. The gains for this division were driven by strong growth in developing regions, as well as the retail hair care and prestige categories.

Grooming net sales increased by 10 percent to $2.1bn, representing organic growth of 3 percent, a figure that was driven by gains in razors and blades in Latin America and Asia, together with gains for the personal care in the North America market.

Baby care and family care net sales grew by 12.1 percent to $4.1bn, representing organic sales growth of 7 percent, gains that were mainly driven by strong baby care sales worldwide.

Increased consumer prices off-set high commodity costs

The company also stated that during the quarter broad-based consumer price increases had helped to absorb higher commodity costs, helping to drive the 4 percent organic sales growth.

Although company CEO Bob McDonald underlined his belief that price increases and productivity improvements should continue to drive earnings growth in the future, he did also state that the company expects to lose the benefit of positive currency exchange in the coming quarter, as the US dollar continues to gain in strength against foreign currencies.

In line with this, the company said that it expects foreign currency translations for the coming quarter to be neutral against increased net sales in the region of 3 to 5 percent, a figure that should be driven by rising consumer prices and productivity, but counterbalanced by higher commodity costs.