Slowly, very slowly, Procter & Gamble (NYSE: PG ) is crawling out of consumer-staples purgatory. But don't be fooled -- the world's largest consumer products company has a long way to go before it reaches growth nirvana.
When we last checked in with P&G between quarterly reports, the company was busy slashing prices and realigning its product portfolio to compete a bit more on a value platform. It's too soon to judge the results of that strategy, but consumers already appear less shell-shocked -- a phenomenon that was perhaps telegraphed by Costco's (NYSE: COST ) earlier results, and is more recently corroborated by Colgate-Palmolive's (NYSE: CL ) quarter.
Net sales of $19.8 billion for P&G's fiscal-2010 first quarter represent a 6% year-over-year decline, owing mostly to a stronger dollar. However, organic sales, which exclude currency effects, rose 2%, beating management's previous guidance of flat to down 3%. Earnings per share also trumped company expectations, climbing 3% to $1.06. Notably, both the top- and bottom-line numbers showed sequential growth.
Of course, it's always nice to see that a company can lift revenue via price increases. But the key metric for judging fundamental business health is volume, and on an organic basis, P&G sold 2% fewer products. On the one hand, that's an encouraging number, as it shows significant improvement from the prior quarter. Still, "over half" of the volume decline was driven by softness in the company's developing and emerging markets regions, where the company increased prices to bolster margins.
In recent years, these corners of the globe have been the holy grail for global consumer-goods companies such as P&G, Johnson & Johnson (NYSE: JNJ ) , and Kimberly Clark (NYSE: KMB ) , with rising middle classes fueling sales growth. P&G's price increases, however, seem to have turned away some of these otherwise eager consumers. To be fair, competitor Colgate-Palmolive saw much of the same effect in its recent quarter, but it nonetheless managed to grow volume on the whole.
So is there any decidedly good news for P&G shareholders? You bet.
On the conference call, management described impressive initial results for many premium-level product innovations. More importantly, from my perspective, management also spoke at great length about "cost innovation" and "value-tier offerings." Crest Pro Health is a perfect example; the company's been able to pass along to the consumer newly realized production savings. It appears that P&G is finally recognizing that it can't excel with consumers by sounding a one-note premium message.
Finally, management lifted the low end of full-year EPS guidance by $0.03 per share, to a range of $4.02-$4.12. Regarding the current quarter, the company sees organic sales growth at 2%-5%, which would be flat to positive versus the just-reported period.
I haven't been keen on P&G in the past year, instead recommending that investors eye shares of Church & Dwight (NYSE: CHD ) or Clorox (NYSE: CLX ) , among others. And although I'm far from convinced that P&G can deliver industry-beating growth in the near-term, its apparent new focus on consumer value could lead to some well-groomed profits down the road.