Price hikes help P&G return to organic sales growth

By Yashaswini Swamynathan

REUTERS - Procter & Gamble Co returned to organic sales growth in the second quarter as the world's largest consumer products maker benefited from higher prices and a sharper focus on a leaner portfolio.

P&G also posted a better-than-expected profit, helped by costs cuts, sending its shares up nearly 3 percent to $79 on Tuesday, outperforming the broader consumer staples index.

The company's organic sales, which exclude the impact of currency, divestitures and acquisitions, rose 2 percent in the quarter ended Dec. 31.

These sales had dropped 1 percent in the previous quarter, the first decline since 2008.

The company has been increasing prices more rapidly in the past few quarters, a strategy that boosted organic sales growth in the latest quarter, but led to a drop in volumes.

P&G is focusing on core brands such as Gillette, Pampers and Tide to revive sluggish growth, which analysts have blamed on the company's slow reaction to trends in important markets such as China.

The results showed that P&G's new chief executive, David Taylor, would be able to correct the company's missteps, RBC Capital Markets analyst Nik Modi said.

But he cautioned that P&G was far away from a successful transformation.

P&G now expects to reduce non-manufacturing costs by 25-30 percent by 2016, a year ahead of schedule, Chief Financial Officer Jon Moeller said on a conference call.

Moeller said the strong dollar would not discourage P&G from investing, forecasting the company's media spend would increase in the double-digit percentage range in the second half of 2016.

But he said P&G's ability to raise prices would be somewhat lower than it has been due to the weak economic environment.

The company, which gets nearly two-thirds of its sales from outside North America, said it would sharpen its focus on higher-margin brands in India.

P&G said the strong dollar reduced second-quarter sales by 9 percent and that it now expected sales in 2016 to be hit by 7 percentage points, more than the 5-6 percentage points impact it had forecast previously.

However, the company said it still expects full-year sales to decline in the high-single digits.

P&G's second-quarter sales fell 8.5 percent to $16.92 billion, slightly below analysts average estimate of $16.94 billion, according to Thomson Reuters I/B/E/S.

Net earnings attributable to the company jumped 35 percent to $3.21 billion, or $1.12 per share.

Excluding items, it earned $1.04 per share, beating estimates by 6 cents.

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Saumyadeb Chakrabarty and Savio D'Souza)