Company remains under pressure despite victory over activist investor Nelson Peltz
By Sharon Terlep and Allison Prang
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 (October 21, 2017).
U.S. shoppers continue to cut back spending on household goods from paper towels to diapers, depressing sales at Procter & Gamble Co., and the consumer giant would like to know why.
The maker of Tide and Pampers reported another quarter of sluggish growth Friday. Fresh off an apparent victory over activist investor Nelson Peltz, P&G is under pressure to show it can bolster sales.
The company's organic sales, a closely watched metric that strips out currency moves, acquisitions and divestitures, rose 1% in the quarter, the increase almost entirely driven by emerging markets outside the U.S.
"We've been unable to put our finger on why this has been," Chief Financial Officer Jon Moeller said in a call with investors. Shoppers continue to consume at the same levels but are spending less on staples. "I've heard theories but nothing to explain the broad slowdown."
P&G said global spending on consumer staples, already tepid in 2017, has slowed even more. The company estimated global industry growth at about 2.3% for the quarter, down from 2.5% the previous period. U.S. growth was essentially flat, the company said.
This week, fellow consumer-products company Unilever PLC also reported weaker-than-expected sales, while Reckitt Benckiser Group, maker of Lysol cleaner and Durex condoms, said it would split its business into two divisions.
Neither gains by lower-cost private-label products nor consumers switching to less-pricey brands accounts for the U.S. spending decline, Mr. Moeller said.
He discounted two other theories behind the slowdown: that Hispanic shoppers are spending less amid concerns over Trump administration immigration policies and that consumers have shifted spending to services. P&G data shows no particular slowdown in markets with a large Hispanic population, Mr. Moeller said, "and the idea that, 'I want a cellphone so I'm not going to wash my hair,' doesn't make sense to me."
Price cuts driven by retailers as they battle each other and online rivals may in part account for the decreased spending, he said.
P&G said its fiscal first-quarter profit rose 5% as China, once a weak spot, now is driving growth. To highlight the turnaround there, Mr. Moeller hosted the analysts' call from P&G's Guangzhou office. Two years ago, P&G CEO David Taylor said publicly that the company lost its footing there. P&G's organic sales in the country rose 8% in the recently ended quarter.
Shares in P&G, up 5.5% over the past year, declined 3.2% to $88.63 in morning trading.
The results come as Mr. Peltz narrowly missed obtaining a seat on P&G's board last week, according to a preliminary vote tally. At least $60 million was spent on the proxy fight -- which the Trian Partners chief executive says isn't over yet -- making it the priciest in U.S. history. Trian declined to comment on P&G's first-quarter results Friday.
The company's profit rose to $2.85 billion, or $1.06 a share, from $2.71 billion, or 96 cents a share. Total sales rose to $16.65 billion from $16.52 billion.
The company expects sales to grow 2% to 3% in the current fiscal year, which ends in June, unchanged from the previous forecast.
P&G's sales growth in the first quarter was helped by segments related to beauty; fabric and home care; and health care. Net sales in the grooming segment, as well as baby, feminine and family care, each fell.
Write to Sharon Terlep at [email protected] and Allison Prang at [email protected]