CINCINNATI — Procter & Gamble Co. shattered the expectations of Wall Street analysts Tuesday with its best sales-growth numbers in more than a decade.
But it also announced an $8 billion accounting charge – the largest in the company’s history – to recognize the declining value of its Gillette brand.
The one-time, non-cash accounting entry caused P&G to report a $5.2 billion loss on revenue of $17.1 billion.
Most investors disregard unusual events in their analysis of a company’s profitability. Excluding the charge, P&G reported core earnings per share of $1.10. That’s 5 cents better than analysts were expecting and 17 percent higher than one year ago.
Organic sales, which excludes foreign-exchange fluctuations, acquisitions and other unusual events, grew 7 percent in the quarter. That’s also better than the 3-4 percent growth analysts predicted.
The one-time charge against earnings was required by accounting rules that force publicly traded companies to re-estimate the value purchased assets every year. P&G said the decline in Gillette’s valuation was primarily driven by foreign-exchange devaluations in the 14 years since P&G acquired Gillette for $57 billion. Increasing competition and societal trends were also factors.
Chief Financial Officer Jon Moeller told reporters that Gillette posted 4 percent organic sales growth in the quarter and continues to be an attractive business for P&G.
“It’s a truly global business with very strong market positions, highly profitable,” Moeller said. “In this business with a significant global footprint over the 14 years since Gillette was acquired, there’ve been significant, negative foreign-exchange developments which we’ve discussed in our financial statements in each of the last three years. That’s the primary driver of that write down.”
P&G shares rose more than 4 percent to $121.76 in the first few hours of trading Tuesday, as the company touted its resurgent growth as the result of a 2014 strategy to sell more than 100 brands and cut costs so more money could be invested in new products that are superior enough to command a premium price.
“Our strategies are beginning to deliver sustainable, balanced growth and value creation,” CEO David Taylor told analysts Tuesday. “We have our eyes wide open. We know there’s more work to do. But we’re confident we’re on the right track.”