At first, I questioned and doubted. Next, I became cautiously optimistic. And now I'm ready to say it: Owing to a strategy shift, beefed-up marketing, and more confident consumers, the beleaguered Procter & Gamble
P&G's fiscal 2010 second-quarter sales came in at $21 billion, a sweet 6% above the year-ago period. Organic volume jumped 5%, notching a massive year-over-year improvement of seven points. Net earnings per share were $1.49, although this is somewhat misleading. Stripping out divestitures and other special items, EPS from continuing operations rallied to $1.10, a guidance-beating 22% gain.
But don't get too lathered up. The second quarter of 2009 was particularly ugly, which makes for easy comparisons this time around. Take volume growth, for instance. About 2% of the gain comes from retailers simply bringing inventories back up to more normal levels versus last year, which is distinct from consumers stacking their carts high with more Tide and Charmin. That said, P&G's business is gaining momentum.
Five of the company's six segments posted organic sales growth (grooming was the lone holdout) and both developed and developing regions showed sequential gains in volume and organic sales. Going forward, I believe that this type of quarter-on-quarter growth will be key to stoking investor confidence.
As for specific products, management described their Pampers Dry Max diapers as "the biggest innovation from the Pampers brand in 25 years." Markedly thinner, the product wins environmental bragging rights -- heck, it even scored a photo-op at the Clinton Global Initiative. The high-tech diaper is scheduled for a full North American rollout in March. While the Pampers name doesn't exactly evoke a mean left hook, Kimberly-Clark's
In addition, P&G recently picked up the Ambi Pur air-care business from Sara Lee
As a final tidbit to lift shareholder spirits, CVS Caremark
Looking forward, management lifted its 2010 organic sales growth guidance from 2%-4% to 3%-5%, while holding fast to its previously announced EPS estimate of $4.02 to $4.12 (core EPS is expected at $3.53-$3.63).
P&G doesn't yet have a recovery in the bag; it still needs to prove that it can grow market share, which was essentially flat in the quarter, although it trended upward. Moreover, its product portfolio will probably never be as trade-down resistant as that of Colgate-Palmolive
But if you've been waiting for signs of a turn before initiating or adding to a position, I'd say this is it.