P&G Q3 2011 Results Strong, Beauty Net Sales Up 9%

The Procter & Gamble Company (P&G) delivered strong first quarter net sales growth of 9% to $21.9 billion. Organic sales, which exclude the impact of acquisitions, divestitures and foreign exchange, grew 4% behind higher volume and pricing. The company also continued to deliver broad-based organic sales growth, with all six business segments up versus the prior year. Market share was in line or higher in businesses representing 60% of global sales, and the company held or grew market share in three of five regions, 11 of its top 15 countries, four of six reporting segments, and on 15 of its 24 billion-dollar brands.

"The first quarter was a good start to the fiscal year," said chairman, president and CEO Bob McDonald. "We maintained strong top-line growth momentum in a difficult operating environment. We are well positioned—due to continued top-line strength, recently implemented price increases and our productivity improvement and cost savings efforts—to improve earnings growth as we progress through the fiscal year."

For the July–September quarter, volume for the company increased 2% on an organic basis behind initiatives and continued market expansions, with mid-single-digit growth in developing regions partially offset by a low single-digit decrease in developed regions. Including the impact of acquisitions and divestitures, all-in volume increased 1%. Key initiatives for the quarter included Pantene treatments in Asia, Vicks Nature Fusion and 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. Broad-based price increases across all segments and geographies to recover higher commodity costs increased net sales by 4%. Geographic and product mix reduced net sales by 1%, and favorable foreign exchange increased net sales growth by 5%.

Beauty net sales increased 9% to $5.4 billion on unit volume growth of 4%. Organic sales grew 4%, the ninth consecutive quarter of growth, on 5% organic volume growth. Price increases added 2% to net sales growth. Mix reduced net sales by 3% due to disproportionate growth in developing regions, which have lower-than-segment-average selling prices, and a decrease in the premium-priced salon professional category. Favorable foreign exchange added 6% to net sales growth. P&G's beauty division is continuing to make investments to support geographic expansions and drive growth behind product initiatives. These investments have led to good results in developing markets and in categories such as retail hair care and prestige. Volume grew high single digits in developing markets behind investments to support initiatives and expansions, and low single digits in developed regions. Volume in retail hair care increased high single digits behind double-digit growth in developing regions led by Pantene initiatives and Head & Shoulders geographic expansions. Volume in prestige products increased double digits driven by initiatives across Gucci, Hugo Boss and Lacoste and the continued strength of the SK-II brand. Volume in female beauty decreased mid-single digits due to the Zest and Infasil divestitures. Olay volume declined due to competitive activity in North America and, in the CEEMEA region, a decrease in customer inventories following strong shipments in the June quarter and comparing against a strong base period. Volume in salon professional declined high single digits due to market softness and competitive activity. Segment earnings are not growing at the same growth rate as net sales due to commodity costs and the aforementioned investments to support expansions and initiatives.

Grooming net sales increased 10% to $2.1 billion. Unit volume was in line with prior year. Organic sales were up 3%. Price increases added 2% to net sales growth. Positive product mix increased net sales by 1%, mainly due to ProGlide and premium appliances initiatives, which have higher-than-segment-average selling prices. Favorable foreign exchange increased net sales growth by 7%. Volume grew low single digits in developing regions and decreased low single digits in developed regions. Male grooming volume grew low single digits behind growth of blades and razors in Asia and Latin America, as well as growth behind male personal care products in North America, partially offset by a decrease in blades and razors in Western Europe due to market softness. Appliances volume decreased high single digits due to market contraction in Western Europe and a strong base period for shavers, epilators and hair care appliances. Net earnings increased 10% to $438 million, in line with net sales growth.

For the October–December quarter, net sales growth is estimated to be 3–5%. Organic sales are also expected to grow 3–5%, with continued benefit from pricing of 3–4% partially offset by unfavorable mix of 1–2%. Foreign exchange is expected to be neutral to sales growth for the quarter. P&G reaffirmed its expectation for an inflection in operating profit growth in the second -half of its fiscal year. The improvement is expected to be driven by an increasing benefit from price increases, a declining impact from higher commodity costs and accelerating productivity improvements and cost savings.

More on P&G’s third quarter 2011 financial results is available here.

More in News