By Angela Chen
Stung by the strengthening dollar, Procter & Gamble Co. and
other American consumer goods makers have been raising prices of
their products in overseas markets to help offset the impact of
currency swings.
That strategy, however, has a downside. P&G on Thursday
reported a 2% drop in sales volumes in the January to March
quarter, primarily a result of its attempts to increase prices in
developing countries.
Sales at the world's largest consumer products maker tumbled 8%
during the recent quarter to $18.1 billion, dragged down because
sales in foreign currencies were worth less when translated back to
the dollar. Excluding the impact of currencies and business
divestments, P&G's sales edged up a modest 1%.
The results underscored the challenges P&G still faces
despite several years of deep cost-cutting and other efforts to
simplify its operations and revive growth. The Cincinnati,
Ohio-based maker of Pampers diapers, Pantene shampoo and Tide
detergent has struggled to post consistent growth in recent years,
and foreign exchange headwinds are now erasing most of the benefits
from its cost cutting.
P&G's net income fell 17% to $2.2 billion, even though
profits grew in double digit terms if currencies moves were
excluded.
The blow from currency is an outgrowth of P&G's expansion
into overseas markets over the years. The company on Thursday said
quarterly sales volumes were lower across all its main business
segments with the exception of grooming, which benefited from sales
of high-end Gillette razors.
Price increases boosted overall sales by 2%, but a drop in
volumes brought them back down by 2%.
Chief Financial Officer Jon Moeller said P&G's latest
results were "not a measure of victory or defeat."
Kimberly-Clark Corp., another big consumer products maker, was
also hit hard by the stronger dollar, which put a nine percentage
point drag on sales, leaving them down 4% at $4.7 billion, the
company said Tuesday.
The company raised prices where it could, but wasn't able to
fully offset the impact of currencies in some markets.
"We're not covering the full translation impact," Chief
Executive Thomas Falk said.
Companies have other levers to pull as the dollar value of their
overseas earnings falls. P&G is planning more cost cuts,
including its spending on marketing agencies, Mr. Moeller said. The
company has been shifting more of its advertising to digital
channels, which already account for more than 30% of the total, and
is now looking to cull the number of advertising agencies it
uses.
Mr. Moeller said P&G held or grew market share in businesses
representing more than 60% of its sales in the U.S., which remains
its largest market. That percentage was around 50% on a world-wide
basis.
P&G executives last summer said the company will shed around
100 brands to focus on a portfolio of 65 leading brands that will
drive its growth. The company has so far announced plans for around
40 brand exits or divestments, including Duracell batteries and
Iams pet food, and plans to announce the remainder by this summer.
Investment bankers are currently reviewing first-round bids for
chunks of P&G's beauty business, including its Wella and
Clairol salon hair care products, its Cover Girl cosmetics, and a
portfolio of designer fragrances.
P&G's beauty, hair and personal care business continued to
struggle during the recent quarter, with organic sales down 3% and
volumes down 4%. The company blamed weakness in its Olay skin care
line, and heightened competition in the shampoo aisle.
Write to Serena Ng at serena.ng@wsj.com and Angela Chen at
angela.chen@dowjones.com
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