PG Procter and Gamble Co

Company's sales gains point to buoyant economy and some room to raise prices

By Aisha Al-Muslim 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 24, 2019).

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

Profit for the maker of Tide detergent and Pampers diapers rose 28% in the latest quarter, even as planned price increases were yet to take full effect. "As commodity prices and foreign exchange rates move, we will take pricing" higher, P&G finance chief Jon Moeller said Wednesday during a call with analysts.

Kimberly-Clark Corp., whose products include Huggies diapers and Kleenex tissues, said Wednesday its profit and sales dropped in 2018's final quarter because of rising commodity costs and currency swings.

P&G joined several other major U.S. corporations this week in reporting a bountiful finish to 2018. Many companies benefited from a healthy U.S. economy and lower tax rates, which offset concerns about trade tensions with China and, more recently, the federal government shutdown.

Tech giant International Business Machines Corp. and industrial 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," Chief Executive Greg Hayes said during a conference call on Wednesday.

For P&G, the gains came from household spending across a number of categories, with beauty products leading the way. Organic sales, a closely watched metric that strips out currency moves, acquisitions and divestitures, rose 4% in its fiscal second quarter, ended Dec. 31. Only its grooming business, which includes the Gillette brand, posted a decline in organic sales in the period.

The Gillette shaving brand has faced competition from upstarts and has resorted to lowering prices to maintain its leading market share. Last week, Gillette released -- to mixed consumer reactions -- a campaign invoking the #MeToo movement.

In the conference call with reporters, Mr. Moeller said some people go as long as a year without buying shaving products, making for what he described as a "long-purchase-cycle business." He also said the Gillette brand continues to add to its users and sales.

Despite a robust U.S. economy and strong consumer spending, household-goods stalwarts like P&G and Kimberly-Clark have battled increased competition, a consumer shift toward smaller brands, and higher costs of raw materials and transportation.

After addressing 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.

Higher prices contributed a percentage point to P&G's organic sales growth of 4% in the recent quarter.

So far, price increases on various products have been announced but not fully implemented, Mr. Moeller said Wednesday, adding that most of the increases will take effect in the current and next quarter. He warned analysts that 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 generally logged growth of no more than 2% -- a performance that led to a proxy fight from activist investor Trian Fund Management, whose co-founder Nelson Peltz now holds a seat on the P&G board.

P&G on Wednesday said its profit rose to $3.19 billion in the latest period. Net sales were flat at $17.44 billion, as unfavorable foreign-exchange fluctuations cut into the total. P&G said it expects organic sales growth for the full year of between 2% and 4%, an improvement on its prior projection of 2% to 3%.

Kimberly-Clark posted quarterly earnings of $411 million, down 33% from a year earlier. Total sales fell 1% to $4.57 billion, hurt by currency swings. Its organic sales rose 3%.

For 2019, Kimberly-Clark predicted organic sales would increase 2%. However, given planned price increases and fewer promotions, volumes are likely 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 24, 2019 02:47 ET (07:47 GMT)

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