Oct 19, 2018
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Procter & Gamble's profits rise despite currency drag

Oct 19, 2018

Consumer goods giant Procter & Gamble plans more price hikes on several consumer products due to increasing material costs and the strong dollar, the company announced Friday as it reported a jump in profits.

SK-II, a P&G brand - Archiv

The cost increases have come amid a series of tariff announcements by US President Donald Trump and retaliatory measures by other governments, which other companies have cited, although P&G executives did not cite the trade conflicts specifically.

P&G, whose brands include Tide detergent and Bounty paper towel, previously announced price hikes on toilet paper and other paper goods in the US. Those increases are still being implemented and were largely not reflected in the just-completed quarter, said Chief Financial Officer Jon Moeller said.

The company had said those hikes were needed due to higher raw material and shipping costs.

But cost pressures on the company have "increased" compared with the July quarter, especially due to the strong dollar, Moeller said.

The currency impact is part of the broader economic story of rising US interest rates pushing the dollar higher, together with weakening exchange rates in troubled emerging market economies.

P&G has notified retailers in the US of price hikes on "several" products in home care, oral care and personal care that will be implemented in the coming months.

The company also expects to boost prices in Argentina, Turkey and Russia to offset an especially acute exchange rate hit, Moeller said.

While the increases could impact consumption and lead to short-term gains for competitors "we feel the moves are the right thing to make given the magnitude of the cost increases and we'll have to adjust as we go and as we learn," he said in a briefing with reporters.

- Better performance -

Net income for the first quarter of fiscal 2019 jumped to $3.2 billion, an 11.9 percent increase from the year-ago period. Revenues were essentially flat at $16.7 billion.

Net sales declined in three of five P&G consumer categories. However, the performance was better when the effect of foreign exchange fluctuations was removed.

Shares of P&G surged in pre-market trading as the results topped analyst expectations.

"Organic" sales, which removes currency movements, jumped four percent, the best increase in about five years, Moeller said.

That's an improvement on recent performance. P&G has struggled to grow sales in recent years, leading to an activist campaign by investor Nelson Peltz, who joined the board earlier this year.

The strongest category was beauty, where net sales grew five percent, thanks to robust growth in "super premium" products from SK-II and Oil of Olay, along with solid performance by some other brands like Old Spice.

A weak spot was the baby, feminine and family care division, where the company was forced to slash prices of Luv's diapers in the US.

P&G saw some improvement in its grooming segment, where rising competition from online companies and ebbing demand due to the popularity of beards has crimped sales.

Moeller said new product launches boosted performance, but he stopped short of declaring victory.

"We continue to face strong and able competition," he said. "We'll face challenges ahead but we're much better positioned than we were."

P&G cut its forecast for fiscal 2019 sales to a range of flat to a decline of two percent due to the strong dollar.

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