Procter & Gamble Co.’s Rebound Gains Steam

Procter & Gamble (PG 0.08%) closed the books on its fiscal 2017 year this week. And while a sluggish industry kept the consumer-product giant from hitting the high end of its guidance, P&G still managed to improve on its expansion pace. The company also forecast a solid sales rebound in the year ahead.

More on that rising outlook in a moment, but first, here's how the headline results stacked up against the prior-year period:

Data source: P&G financial filings.

Sales and profits

Organic sales growth was 2% for both the quarter and the full fiscal year that ended in June. That result met management's original forecast, but fell just below the upgraded outlook P&G issued after starting the year on a surprisingly strong note.

The gains compare well to industry rivals. Kimberly-Clark (KMB 1.22%) competes against P&G's core Pampers franchise, and it announced declining organic sales earlier in the week.

Image source: P&G.

P&G's fabric and home-care segment led the way, with a solid uptick in both volume and average prices. That division is anchored by powerhouse brands including Tide detergent, and has benefited from a string of successful product innovations. On the other hand, the grooming division continued to lose business as price-based competition chipped away at the Gillette razors-and-blades franchise.

Core operating profit, which strips out foreign-currency swings and brand divestments, improved by nearly 2 percentage points, as cost cuts and productivity gains more than offset increasing commodity costs. P&G's operating margin was 21.5% for the full year, up 1 percentage point, compared to Kimberly-Clark's 18%.

Management comments

Executives focused their comments on broader operating trends that showed steady progress at returning to robust growth. "We met or exceeded each of our... objectives for fiscal year 2017 in a challenging macro and competitive environment," CEO David Taylor said in a press release.

In what might have been a reference to a recent shareholder challenge, P&G also noted that its management team is ready to defend its turnaround strategies. "Achieving our objectives will not only require continued focus as an organization," Taylor said, "but also that we prevent anything from derailing the work that is delivering improvement. We, as a management team and [board of directors], are confident we have the right plan in place."

Can P&G sustain the rebound?

P&G's hand in that activist-shareholder fight should be strengthened by its improving outlook. Management's 2018 forecast calls for organic sales growth to speed up for the second straight year, to a 3% pace, compared to Kimberly-Clark's flat growth target. The gap between the two forecasts suggests P&G is finally seeing traction from its portfolio-reorganization initiative that removed 100 slow-growth brands from the business. It also implies the company could soon end its two-year market-share slide.

That success would allow profit gains to once again be driven by sales growth to create a more sustainable operating position. After all, P&G has been relying on cost cuts and the funds raised through selling off brands to keep earnings rising over the last few fiscal years. That strategy only bought time for the management team to make the changes needed to return to a healthy market-share position. P&G's 2018 outlook marks a step in that direction.