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Procter & Gamble bets on demand for high-end fabric, skin-care products

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Reuters
Published
today Jan 23, 2019
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Procter & Gamble Co raised its sales forecast for the year on Wednesday after quarterly results topped Wall Street expectations, boosted by price hikes and strong demand for premium fabric and skin care products.




Premium products such as Gain or Downy fabric enhancer beads and SK-II skincare products boosted growth during the quarter, and helped P&G, the no. 1 personal care goods company, set itself apart from in-house supermarket brands that have been encroaching on market share.

Consumer goods companies have faced a string of challenges in the past year, including soaring commodities costs, a shortage of truck drivers, competition from supermarket brands and direct-to-consumer start-ups.

To counter this, P&G is cutting costs and revamping its brands and marketing strategy. The company, which makes Gillette razors and Tide detergents, has also raised prices and launched higher-end products in its beauty and fabric care businesses.

The company’s shares rose 4.5 percent to $94.55 after it posted better-than-expected second-quarter results.
“Yet another strong quarter for P&G as execution is clearly improving, proving last quarter wasn’t a fluke,” Wells Fargo analyst Bonnie Herzog said.

P&G said it now expects full-year organic sales growth of 2-4 percent compared with previous guidance of 2-3 percent. Organic sales excludes items like acquisitions and the impact of foreign currency fluctuations.

NO SIGN OF RECESSION

Chief Financial Officer Jon Moeller said on a call to discuss earnings that steady results and confidence in global growth prompted the better forecast, but noted possible economic challenges such as trade, Brexit and the U.S. government shutdown.

“We’ve seen nothing in purchase data, to date, and consumer behavior, to date, that would indicate that we’re currently moving towards a recession,” Moeller said.

The International Monetary Fund trimmed its global growth forecasts on Monday and said the risk of a sharper decline in global growth had increased.

Quarterly organic sales rose 4 percent. Analysts on average were expecting growth of 2.4 percent, according to IBES data from Refinitiv.

Organic sales in P&G’s beauty business rose 8 percent, driven by strong demand for its premium SK-II and Olay skin care brands, while feminine care business, which includes brands such as Tampax and Whisper, also witnessed high single-digit growth.

Fabric and home care business, which includes brands such as Tide and Ariel, rose 2 percent to $5.56 billion. The business is P&G’s biggest contributor to sales.

Excluding items, the company earned $1.25 per share in the second quarter ended Dec. 31, beating analysts’ estimate of $1.21 per share. Net sales rose marginally to $17.44 billion, beating analysts’ average estimate of $17.15 billion, according to IBES data from Refinitiv.

In contrast, industry peer Kimberly-Clark Corp said on Wednesday that its expects the environment in 2019 to remain challenging, while its quarterly profit missed expectations.

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