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Procter & Gamble Co. growth still not fast enough to quiet skeptics

Analyst: Market share losses continue
Procter & Gamble Co. growth still not fast enough to quiet skeptics
Posted at 10:51 AM, Jan 23, 2018

CINCINNATI - Revenue up, expenses down.

That’s the oft-quoted mantra of activist investor Nelson Peltz, who will attend his first Procter & Gamble Co. board meeting in March. And that’s what P&G delivered in its second-quarter earnings report Tuesday.

“We accelerated organic sales growth and delivered strong productivity cost savings and cash flow," CEO David Taylor said. “We remain on track to achieve our fiscal year objectives.”

But in a conference call with Wall Street analysts, P&G made it clear that it has no intention of shifting strategy to accomplish rapid growth. And that sent P&G shares downward in early trades Tuesday. The stock opened at $89.89, down more than 2 percent from yesterday's close.

P&G booked a $2.5 billion profit on revenue of $17.4 billion in the three months ending Dec. 31. Earnings per share were 5 cents better than Wall Street analysts were expecting. Organic sales growth – which excludes currency fluctuations and other non-recurring events – was 2 percent, slightly better than analysts projected.

The quarter included a recovery in P&G’s long-suffering beauty segment, led by a new product launch in China that delivered 30 percent sales growth for the Olay skin-care brand. But it also included continued sluggishness in razors and baby-care products.

In a conference call with Wall Street analysts, P&G fielded several questions about continued weakness in market share and a lack of new ideas for enabling faster growth.

"Could you address the baby care business? The weakness there surprised me," said Citi analyst Wendy Nicholson. Wells Fargo analyst Bonnie Herzog opined: "Your market share losses continue to persist."

And Bank of America's Olivia Tong asked why P&G doesn't have a plan for re-investing savings from tax reform.

"In the past, you've said you aren't suffering from a lack of ideas," Tong said.

"Our strategy has not changed in terms of how we intend to compete," Chief Financial Officer Jon Moeller said after repeated questions. P&G will continue to "deliver value-accretive offerings which drive market growth and our market share disproportionately ...while increasing margins."

P&G enjoyed a $135 million boost from tax reform in the quarter and expects an ongoing benefit of up to $450 million in increased cash flow in future years. P&G increased its profit outlook for the full year, telling investors to expect profit growth of 5 to 8 percent, up from 4 to 7 percent. And it told investors to expect an increase in share buybacks, which can improve earnings per share and boost a company's stock price. But P&G declined to comment on any new investments in U.S. plants or employment.

“It makes us a stronger company over the long term, which certainly increases our confidence in terms of investing in the business,” Moeller said. “We’re not commenting today on specific initiatives.”