Credit: Shutterstock photoThe FMCG giant Procter & Gamble ( PG ) reported its Q1'17 earnings on October 25th. P&G's has seen its net sales decline in the last two fiscal years with CAGR of -6.3%, primarily due to currency headwinds and economic problems in Latin America and China. The Q1 results signal a return in P&G's growth as the company's organic sales grew by 3% and net sales remained flat despite tough macro conditions. In comparison, the company's key competitors Unilever ( UL ) and Kimberly Clark ( KMB ) are struggling to deliver. P&G's stock jumped marginally after the earnings release, negating the fear which was factored in its price post Unilever's bleak Q3 results. P&G benefited from the turnaround in China and the continued market growth in its 10 core product segments. Brand portfolio transformation, product innovations and premiumization played a key role in these results. We believe that P&G will continue to benefit from these three strategies in the future to further revive its growth.
Seeour complete analysis for Procter & Gamble
Q3'16 Highlights:
- Organic sales and volume growth continued in all the five segments in lieu of successful innovation and marketing campaigns.
- Both the U.S. and China, which are the top two markets for P&G, reported 3% and 2% organic sales growth respectively. China has seen a massive turnaround since the growth from the region was -8% in the first half of FY 2016.
- High commodity prices and increasing wages across the developing markets turned out to be a headwind which was likely offset by the organic volume increase across all the segments.
Strategy 1 : Portfolio Transformation and Productivity Improvement
- Under the portfolio transformation program, P&G sold 100 under performing brands to concentrate on 65 of its core brands.
- The benefits of the sale of 41 beauty brands to Coty will start reaping from Q2'17 as the deal has been closed in early October.
- Already, the simplified portfolio and focused attention on core brands has led to a turnaround in organic growth of the key segments such as hair care, baby care, fabric care & grooming.
- Cost savings in the last 5 years from improved productivity and efficiency stood at $7 billion with a target of $10 billion for the next 5 years.
Strategy 2: Product Innovation
- Product improvements are essential to gain the market share and improve customer stickiness.
- Mach 3 razor, which has 55 million customers was upgraded in the quarter for the first time in a decade.
- The new 'Crest 3D White toothpaste' was launched which supported the fastest growing Healthcare segment.
- Further product launches have been scheduled for the third and fourth quarter of this fiscal year.
Strategy 3: Premiumization
- Premium products yield higher revenues and better margins compared to the cheaper products.
- SK-II, which is the premium skin care brand led a strong 3% organic sales growth in the beauty segment.
- The launch of new Crest 3D White toothpaste also indicates towards premiumization of the product category.
- P&G's management declared that it plans to focus only on the top and middle price tiers which have been showing higher growth and profits.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
