Commentary

Despite Gillette's Woes, Price Increases Lead P&G To Stellar Results

Procter & Gamble had its best quarter of organic sales in 13 years despite the beating its Gillette Shave Care unit has been taking, resulting in an $8 billion write-down on the business it acquired in 2005.

“The maker of Tide detergent and Pampers diapers said Tuesday organic sales -- which strip out currency moves, acquisitions and divestitures -- rose 7% in the quarter. About half the gains came from higher prices. The company posted the strongest organic-sales gains in its beauty and health-care businesses,” Sharon Terlep and Aisha Al-Muslim report  for The Wall Street Journal.

advertisement

advertisement

“P&G said the write-down at its Gillette shaving business was due primarily to currency devaluation, although it also recognized that grooming had been hit by ‘market contraction of blades and razors, primarily in developed markets,’” Alistair Gray writes  for Financial Times.

“Along with its big rivals, P&G has long been under pressure from changing consumer tastes and intensifying competition that have hurt pricing power. Grooming products have been among the worst hit. Men are shaving less and Gillette has lost ground to the likes of Dollar Shave Club and Harry’s,” Gray adds.

In particular, “millennial men aren’t shaving as often as their dads do,” Carleton English writes  in the New York Post. “[P&G CFO Jon] Moeller said younger rivals had ‘much less of an impact’ on its business than hirsute millennials. Nevertheless, ‘new competitors have entered at prices below the category average,’ Moeller said.”

English points out “the Harry’s Web site was offering eight blades for $16, while Dollar Shave Club was hawking four fancy blades for $10. By comparison, an eight-pack of Gillette SkinGuard blades costs $21.” 

And the WSJ’s Terlep and Al-Muslim observe that “the company has acknowledged that it erred with a singular focus on creating more sophisticated razors with higher and higher prices, opening the door to lower-priced rivals.”

You certainly can’t say those young upstarts are struggling to get by in a world ruined by boomers. The Dollar Shave Club was acquired  by Unilever for $1 billion three years ago and Edgewell Personal Care, the owner of the Schick and Wilkinson brands, is buying  Harry’s for $1.37 billion, it announced in May.

Moeller insisted that grooming was a “very attractive” business for P&G and its organic sales in the sector grew 4% as a whole, helped along by several factors including increased pricing.

And CEO David Taylor “told analysts that because both Unilever and Edgewell will count on the start-ups for sales growth, those acquisitions benefit the entire shaving industry. ‘We see it as again a competitive category, but an attractive category,’ Taylor said,” CNBC’s Amelia Lucas writes.

“P&G has been trying to rejuvenate Gillette and Venus, its razor brand for women, through new marketing campaigns aimed at millennials and Generation Z. Its direct-to-consumer online business for Gillette remains small but is growing,” Lucas adds.

Looking at the broader picture, “P&G’s price increases in the quarter reinforce that consumer companies aren’t shying away from passing on higher costs to customers. Increased pricing added three percentage points to organic sales in the period. Still, not everyone’s willing to pay more: In the baby segment, the company saw reduced volumes due to higher prices, it said,” Bloomberg’s Jonathan Roeder and Matthew Boyle report.

Speaking with CNBC after the fiscal fourth-quarter earnings were released yesterday, P&G chairman and CEO David Taylor said “that the U.S. consumer ‘remains strong’ despite global growth fears amid the U.S. trade war with China,” writes  CNBC’s Jasmine Kim.

“We’re doing everything we can with the innovation that we bring to continue to accelerate growth in the categories,” Taylor said in an interview with ‘Closing Bell.’ “We expect a modest decline in some categories. But, overall, the U.S. is healthy and the consumer [has] responded well to innovation that delights him or her.”

Just as Wall Street responds well to news that delights it.

P&G’s “shares popped more than 4% in pre-market trading,” Brian Sozzi writes  for Yahoo Finance.

Overall, fourth quarter sales were about $300 million ahead of analyst estimates and earnings excluding one-time items were $1.10 a share, surpassing forecasts for $1.05 a share. 

“P&G’s outlook also signaled another solid year of growth in its current fiscal year. The company outlined sales growth of 3% to 4% in the coming fiscal year. Earnings excluding one-time items are seen rising 4% to 9%,” Sozzi adds.

Next story loading loading..