Lauren Coleman-Lochner New York
PROCTER & Gamble’s second-quarter profit fell 31 percent as the stronger dollar ate away at sales and earnings from its international units, the largest consumer products maker said.
Net income dropped to $2.37 billion (R27.3bn), or 82 cents a share, from $3.43bn, or $1.18, a year earlier, Cincinnati-based P&G said on Tuesday. Excluding some items, profit was $1.06 a share. The average of 21 analysts’ estimates was $1.13.
Currencies
Chief executive AG Lafley has tried to combat a currency-driven sales slowdown in emerging markets by adding more premium-priced products to P&G’s domestic offerings. The strategy was not enough to keep revenue growing in the second quarter, as foreign exchange rate pressure that Lafley called “unprecedented” reduced sales by 5 percentage points.
“Virtually every currency in the world devalued versus the US dollar, with the Russian rouble leading the way,” Lafley said.
While the company continues to transform to focus more on the household and personal-care businesses, “the considerable business portfolio, product innovation and productivity progress was not enough to overcome foreign exchange”.
Second-quarter sales fell 4.4 percent to $20.2bn, trailing analysts’ $20.7bn projection.
The shares slid 3.4 percent to $86.49 at the close in New York, the biggest one-day drop since April 2013. P&G rose 12 percent last year, compared with an 11 percent gain for the Standard & Poor’s 500 index.
P&G said currency effects would continue to be a drag in the current financial year. They’ll reduce sales by 5 percent, leading to a decline of as much as 4 percent from a year earlier. The company repeated its forecast that sales excluding currencies and the effects of acquisitions and divestitures would rise at a low- to mid-single digit percentage rate.
Headway
Foreign exchange will cut net earnings by 12 percent, or about $1.4bn after taxes. P&G maintained its forecast that currency-neutral core earnings per share, which excludes items such as restructuring and impairment charges, will grow by a double-digit percentage.
While currencies would weigh on earnings and sales, Lafley said P&G was making headway and would boost market share for some of its category-leading brands.
That progress was apparent in yesterday’s results, Erin Lash, an analyst at Morningstar in Chicago, said.
“Some of the investments they’re making behind their brand portfolio appear to be paying off,” said Lash, who has a hold recommendation on the stock. P&G has gained share in detergents with its Tide Pods, while improvement in Pantene sales in the US indicates that the struggling beauty business “could be turning a corner”.
The company also has taken business from Kimberly-Clark in the adult-incontinence market, which it re-entered last year.
Kimberly-Clark said it had lost share in North American diapers in the last quarter.
Another rival, Unilever, has also lost ground in the US. Deodorant and shampoo sales in the US at Unilever declined in the fourth quarter after nine months of gains, according to Nielsen data cited by Exane BNP Paribas. – Bloomberg