The Procter & Gamble Company reported third quarter fiscal year 2017 results on Tuesday, with Beauty segment organic sales increasing 1 percent versus a year ago, driven by growth in Skin & Personal Care. Organic sales increased low single digits in Skin & Personal Care as the continued growth of super-premium SK-II offset lower volume in retail skin care, the company said in its earnings call.
The Beauty segment in developed markets declined high-single digits, with growth in Europe and the Asia-Pacific region offset by declines in North America. In North America, Skin Care and Antiperspirant/Deodorant declined due to promotional activity and inventory adjustments. Organic sales in Hair Care were unchanged. Sales in the Beauty segment in developing markets were up mid-single digits driven by growth in Latin America. Developed markets were down mid-single digits with strong growth in Europe offset by competitive promotional activity and inventory reductions in the U.S.
For the quarter ended March 31, P&G posted sales of $15.6 billion, a decrease of 1 percent versus the prior year, including a negative 2 percent impact from foreign exchange. Organic sales increased 1 percent driven by a 1 percent increase in organic shipment volume. Diluted net earnings per share were $0.93, a decrease of 4 percent versus the prior year, while core earnings per share increased 12 percent to $0.96.
Operating cash flow was $3 billion for the quarter. P&G returned $1.8 billion of cash to shareholders as dividends and repurchased $2 billion of common stock. Earlier this month, P&G announced an increase in its quarterly dividend, marking the 61st consecutive year it increased its dividend. P&G has been paying a dividend for 127 consecutive years since its incorporation in 1890.
“The third quarter macro environment was characterized by a slowdown in market growth, continued geopolitical disruptions and foreign exchange challenges,” said David Taylor, Chairman, President and Chief Executive Officer. “Against this backdrop, we delivered modest organic sales growth and double-digit core earnings per share growth, and we increased the quarterly dividend for the 61st consecutive year. Looking forward, we are maintaining our organic sales and Core EPS guidance ranges for the year and increasing our outlook for adjusted free cash flow productivity.”
Pricing and mix had no net impact on sales for the quarter. All-in volume was unchanged including the impacts of minor brand divestitures.
Other highlights from the earnings call included:
- Grooming segment organic sales decreased 6 percent due to lower volume and reduced pricing in Shave Care. Organic sales decreased high single digits globally in Shave Care due to competitive impacts in the U.S.
- Organic sales grew 30 percent online in the quarter. It’s now 5 percent of business, about $3 billion business. Ecommerce is primarily focused, but not exclusively, to the U.S., China and Northeast Asia, particularly Korea. China is about a $1 billion business online currently. That’ll be 20 percent to even as high as 30 percent of business within the next 12 to 18 months. Korea is 40 percent of the business today.
- The U.S. development in e-commerce is very different by category, with some of the bulkier and heavier products appealing to people online, so they’re not having to fill up their shopping carts with baby diapers, for example.
- Beauty care has been continually improving with the recent quarter serving as the sixth quarter in a row of organic sales growth. SK-II and Head & Shoulders are credited as the strongest brands, while Pantene, on a global basis, has also been doing very well. Some of our personal care businesses have been doing well. P&G just relaunched and re-staged Herbal Essences, which grew 6 percent in the quarter versus a year ago. There’s still work to do on Aussie and Rejoice, and within skin care they’re still making progress on Olay.
- P&G said it is maintaining its guidance for organic sales growth in the range of 2 percent to 3 percent for fiscal 2017. Fiscal year to date, P&G is at the low end of this range. The company expects the combination of foreign exchange and minor brand divestitures to reduce sales growth by two to three percentage points. As a result, P&G estimates all-in sales to be down 1 percent to in-line with the prior fiscal year.