P&G shows early scars from economic blows

By Guy Montague-Jones

- Last updated on GMT

Founded in a period of economic upheaval in 1837, Procter & Gamble has thrived in good and bad times but in the latest quarter the company has struggled to avoid the fallout from the spreading recession.

The dual blow of the strong dollar and lower consumer confidence left bruises on the profit and loss account for the second quarter. Net sales fell 3.2 percent to $20.37bn and organic sales growth was down to 2 percent.

Previously P&G had predicted organic sales – those unrelated to acquisitions and disposals – to increase by 4 to 6 percent.

Recession-resistant not recession-proof, says CEO

But poor early figures forced the company to warn investors in December that the sales target would be missed. At the time, Chairman and CEO A.G. Lafley conceded that P&G was recession-resistant, but not recession-proof.

Lower consumer confidence cut into top-line growth and international sales, in a reversal of recent trends, also dragged sales down because of the stronger dollar.

Even profits looked lackluster once the windfall from the sales of the Folgers coffee business was accounted for. Net profits were up 53 percent to $5bn but earnings from continuing operations were down 7 percent.

Honing in on beauty, sales fell 4 percent $4.9bn for the quarter with prestige fragrances suffering most in the economic decline and hair care coming out looking best.

Value of promotions focused on price

Commenting on strategy in the recession, Lafley said in a conference call that promotions that emphasize value would help the company increase market share.

In personal care, Gillette Fusion commercials say the blades deliver a comfortable shave for only $1 a week and the early signs from the accounts suggest that the focus on value for money is paying dividends. Fusion achieved double-digit sales growth in the quarterly sales figures.

Nonetheless, P&G is conservative about its sales prospects for the rest of the year cutting its sales forecast for the fiscal year ending in June to between 2 and 5 percent.

Related topics: Business & Financial

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