Growth Companies

P&G: Sales Down, but Profits Up on Cost Cuts, Price Hikes

Profits beat analysts' expectations despite a 7% drop in net sales.
Katie Kuehner-HebertApril 26, 2016

Procter & Gamble’s quarterly profit rose on expense reduction and higher prices for its products. However, sales continue to fall as higher prices pushed down volumes and as the company winnows its portfolio to focus on faster-growing brands such as Pampers diapers and Pantene shampoo.

Net income attributable to P&G rose nearly 28% to $2.75 billion, or 97 cents per share, for the company’s fiscal third quarter ending March 31. Excluding items, it earned 86 cents per share, beating analysts’ average estimate of 82 cents, according to Thomson Reuters I/B/E/S.

Net sales fell 7% to $15.76 billion, which included a negative-five-percentage-point impact from foreign exchange and three-percentage-point impact from the combination of the Venezuela deconsolidation and minor brand divestitures. Analysts were expecting revenue of $15.81 billion.

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Organic sales rose 1% on shipment volume that was unchanged versus the prior year. Pricing increased total net sales by 1%. Volumes fell in all businesses, except in the baby, feminine, and family care business, and overall volume fell 2% due to the Venezuela deconsolidation and minor brand divestitures.

P&G’s net revenue fell 7%, the smallest drop in three quarters, to $15.76 billion, and included a five-percentage-point negative impact from foreign exchange.

“We continue to make progress on the transformations we are undertaking to return P&G to balanced top and bottom-line growth and maintain strong cash generation,” P&G chief executive David Taylor said in a press release. “We achieved a significant milestone this quarter in the transformation of the product portfolio with the sale of the Duracell business. We delivered another strong quarter of productivity improvement and cost savings, and we increased investments in innovation, advertising and selling to enhance our long-term prospects for faster, sustainable top-line growth and value creation.”

The company’s CFO, Jon Moeller, said on a media call that P&G continues to expect organic sales to rise in the low-single digits percentage range in the fiscal year ending June, but sales would be driven by volume rather than pricing in the next two to four quarters, according to Reuters.

“P&G had lost market share as it has been slow to react to changing trends in key markets including China. But under Chief Executive David Taylor, who took over from A.G. Lafley in November, P&G has ramped up advertising spending to regain its footing,” Reuters wrote.

The company now expects full-year core earnings to fall 3% to 6%, compared with the decline of 3% to 8% it had estimated in January.