Procter & Gamble beats profit expectations; sales fall
CINCINNATI — Procter & Gamble (PG) reported a $3.2 billion quarterly profit on Tuesday — a 35% increase from the same period a year earlier.
Net sales for the Cincinnati-based consumer products giant dropped 9% to $16.9 billion for its fiscal second quarter ended Dec. 31. Diluted earnings per share were $1.12. Excluding one-time items, core earnings per share were $1.04.
Wall Street analysts had forecast P&G to post an 80 cent profit per diluted share or a $2.8 billion profit before one-time items on sales of $16.9 billion. Last year, P&G reported a $2.4 billion profit on sales of $20.2 billion.
Besides beating analysts' profit expectations, P&G also reported positive organic sales growth of 2%. The company said a 3% price increase more than made up a 2% decline in organic shipment volume.
Foreign exchange rates continued to exact an expensive toll on P&G's sales: shaving 8% off revenues or roughly $1.3 billion. To protect profitability, the company has raised prices overseas to blunt the effects of currency woes.
“We are encouraged by our return to organic sales growth in the quarter,” said CEO David Taylor in a statement. “With the top-line improvement and continued cost reduction, we delivered solid core operating income and EPS growth in the face of significant macro-economic and geopolitical headwinds.”
Tepid worldwide growth has prompted central banks around the world to devalue currencies in an attempt to spur exports. But those unfavorable exchange rates evaporate sales for P&G, which does two-thirds of its business outside the U.S. Company executives estimated currency woes cost it $1.7 billion in lost sales during the first quarter ended Sept. 30 and $4.6 billion during the fiscal year ended June 30.
"Unfortunately, we're facing a situation where the dollar is strengthening vs. every country in the world," said Chief Financial Officer Jon Moeller on Tuesday in a conference call.
Indeed, the Russian ruble is worth 45% less than it was a year ago vs. the U.S. dollar, the Brazilian real is worth 41% less; the Mexican peso is worth 21% less; and the euro is worth 12% less; the Japanese yen is worth 11% less; the Indian rupee is worth 8% less; and the British pound is worth 5% less.
In the last year, only three currencies in the world have appreciated against the U.S. dollar by more than 1%: the Somali shilling, up 22%; the Suriname dollar, up 1.5%; and the Gambian dalasi, up 1.1%, according to Bloomberg.
P&G also is in the process of selling off several non-core businesses in a bid to focus the company on its 65 best-selling brands. The brand-shedding, first announced in summer 2014, is expected to remove more than $10 billion worth of sales from the company. P&G's shrinking numbers represent the beating the company is taking from the effects of the strong dollar on exchange rates as well as the ongoing sale of nearly 100 brands.
P&G's pending sale of Duracell batteries to Warren Buffett's Berkshire Hathaway is expected to close before April.
Adjusted for the pending sale of 43 beauty brands merging with New York-based Coty and other divestitures, P&G said its year-ago net profit was nearly $2.7 billion on sales of $18.5 billion.
Procter & Gamble shares are up 3.1% to $79.24 in late-morning trading.
Follow Alexander Coolidge on Twitter: @alexcoolidge
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