IBM International Business Machines Corp

By Aisha Al-Muslim 

Procter & Gamble Co. reported strong quarterly sales growth, continuing a streak of robust gains and prompting the consumer-products giant to raise its outlook for the year even as one of its closest rivals reported weaker results.

P&G, whose brands include Tide detergent and Pampers diapers, was one of several U.S. giants this week to report higher profits to finish 2018. Many corporations benefited from a healthy U.S. economy and lower tax rates last year, which offset concerns about trade tensions with China and, more recently, the partial U.S. federal government shutdown.

Tech giant International Business Machines Corp. and conglomerate United Technologies Corp., which makes Otis elevators and Pratt & Whitney jet engines, pointed to healthy spending by their business customers. Shares of all three companies rallied Wednesday on their latest results.

Executives at United Technologies said they had seen no impact on their business from the U.S. government shutdown, and they continue to forecast strong economic growth in the U.S. and China. "The U.S. again really, really pretty good outlook for this year off the back of some strong orders that we saw in 2018," said CEO Greg Hayes on a conference call Wednesday.

For P&G, the gains came from household spending on its big brands. The maker of Tide detergent and Gillette razors said organic sales, a closely watched metric that strips out currency moves, acquisitions and divestitures, rose 4% in the fiscal second quarter. Organic sales were boosted by 1% due to higher pricing.

Beauty products fueled the gains, with organic sales rising 8%, but the company reported growth across a number of categories. Only the Gillette razor business posted a decline in organic sales in the latest quarter.

Rival Kimberly-Clark Corp., which makes Huggies diapers and Kleenex tissues, reported falling profits in the same quarter as it was squeezed by rising commodity costs and currency swings. The smaller company said organic sales rose 3% from a year before.

Despite a robust U.S. economy and strong consumer spending, the companies have encountered increased competition, a consumer shift toward smaller brands, and higher costs of raw materials and transportation.

After trying to combat weak demand by lowering prices, P&G changed course late last year, saying it would increase prices in late 2018 and early 2019 for several products, including its Pampers, Bounty, Charmin and Puffs brands. Kimberly-Clark and other consumer-goods makers have followed P&G's lead on raising prices.

So far, price increases on various products have been announced but not fully implemented, P&G's finance chief, Jon Moeller, said in conference call with reporters. Most of the increases will take effect in the fiscal third quarter and in the fourth quarter, he said during a call with analysts.

"As commodity prices and foreign exchange rates move, we will take pricing," Mr. Moeller said during the call with analysts. He added, higher pricing "will increase volume uncertainty and volatility."

The organic growth in P&G's fiscal second quarter matched the first quarter, which was the best growth rate in several years. For a long stretch, P&G's quarterly organic sales had generally risen 2% or less -- lackluster growth that attracted a proxy fight from activist investor Trian Fund Management, whose co-founder Nelson Peltz now holds a seat on the P&G board.

While sales rose for Tide and Pampers, organic sales fell 3% in the grooming business, which includes the Gillette brand. The established brand has faced competition from upstarts and has resorted to lowering prices to maintain its leading market share.

Last week, Gillette released a campaign invoking the #MeToo movement. The nearly two-minute ad posted online after the second quarter ended. The ad received mixed reactions from customers.

In the conference call with reporters, Mr. Moeller described the grooming business as a "long-purchase cycle business" with some people going as much as a year without buying shaving products. However, he said, Gillette continues to grow sales and users.

Overall, P&G said profit rose 28% to $3.19 billion in the second quarter, which ended Dec. 31. Net sales were $17.44 billion, unchanged from the previous year, but unfavorable foreign-exchange fluctuations hurt sales by 4%.

P&G increased the high end of its full-year forecast for organic sales to rise 2% to 4%, compared with its prior estimates of 2% to 3%.

Meanwhile, Kimberly-Clark reported quarterly earnings of $411 million, down 33% from a year earlier. Total sales fell 1% to $4.57 billion, hurt by currency swings.

For 2019, Kimberly-Clark predicted organic sales should increase 2%. However, given planned price increases and fewer promotions, the company expects volumes to suffer, particularly with consumer tissue products, executives said during a conference call.

In October, Kimberly-Clark said it was switching chief executives in the midst of a restructuring program intended to boost profits as the company struggled with weak sales.

Michael Hsu, the former president and chief operating officer who became chief executive earlier this month, said Wednesday the company expects 2019 to be challenging but "somewhat better than in 2018."

--Thomas Gryta contributed to this article.

Write to Aisha Al-Muslim at aisha.al-muslim@wsj.com

(END) Dow Jones Newswires

January 23, 2019 13:02 ET (18:02 GMT)

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