CINCINNATI - Procter & Gamble Co. sees little risk that a Donald Trump presidency could derail its newfound growth in China, while it strongly supports the tax-reform ideas touted by America’s 45th president.
Those views were expressed by Chief Financial Officer Jon Moeller Friday in a media briefing on the company’s second-quarter earnings.
“We continue to be very encouraged about prospects in China,” Moeller said. “There’s a lot to like there.”
P&G exceeded analyst expectations with its second-quarter results, posting a $7.9 billion profit on revenue of $16.9 billion, including gains from the sale of its beauty brands last year. P&G’s core earning per share – excluding divestitures – were $1.08 per share, 2 cents better than the consensus of Wall Street analysts. The revenue result was $90 million better than expected, prompting P&G to increase its guidance on full-year revenue.
P&G shares were up more than 2 percent to $87.10 in pre-market trading.
A big factor in P&G’s improved results is China, its second largest market generating more than $5 billion in annual revenue. In the last year, P&G reversed a sales slump in China – achieving 3 percent growth in the second quarter, compared to an 8 percent decline a year ago.
Trump has accused China of over-taxing U.S. products and keeping its currency artificially low. He’s threatened tariffs on Chinese imports, which some fear will result in a trade war.
Moeller said China’s population growth and its shift to more of a consumption-based economy bode well for long-term growth.
“It’s a country where prices and product choices are premiumizing. Consumers are trading up to higher-performing products pretty broadly,” he said. “It’s hard for me to believe that those positives would be overcome in any significant way by U.S. policy objectives.”
On the question of tax reform, Moeller said P&G is “very supportive of the process” that Congressional Republicans are pursuing with President Trump.
“The answer is really going to lay in the details, which are unclear at this point,” he said. “Generally, we’re strong proponents of tax reform as it’s been directionally outlined.”
P&G stands to benefit in two ways from Trump’s proposal to cut the corporate tax rate from 35 percent to 15 percent. It paid an effective tax rate of 21.3 percent in the second quarter. That could be reduced if the U.S. corporate rate declines. In addition, P&G has $49 billion in overseas profits that have yet to be returned to the U.S. because the money could be taxed at up to 35 percent.
Moeller said the tax reform proposals now being discussed could help P&G “be more competitive over a long period of time” with overseas rivals and give it new ability to “move cash freely without a lot of friction to its best use, whether that’s an investment in another company or whether that is payment of dividends and share repurchase.”
