This is shaping up to be a solid year for Procter & Gamble's (NYSE:PG) business. The consumer products giant is wrapping up its fiscal 2017 in early August, when it should post an improvement in its annual sales growth pace for the first time in years. Its profitability recently hit a new high, too.
Detracting from those successes is the fundamental fact that P&G is suffering another disappointing year of market-share losses. Still, the company has managed a few operating and financial wins despite the overall weak selling environment.
Defending market share
P&G's best-performing divisions through the first three-quarters of the fiscal year are its fabric care and healthcare segments. Healthcare, home to the Crest and Oral-B franchises, boosted organic sales by 7% thanks to a 5% surge in volume and 2% higher prices.
P&G has done a good job innovating around electric toothbrushes that, because of their higher selling prices, have pushed revenue and profitability up. Global market share in the healthcare segment has essentially held steady so far this year, with its 0.1% drop comparing well to a 0.5% decline for the shaving business and a 0.7% slump for the beauty division.
The fabric care segment is anchored by P&G's Tide, Downy, and Gain franchises and generates the largest proportion of both sales and earnings for the company. Over the past nine months the division grew 2% on higher volume and flat sales. P&G has defended its worldwide market share in the segment with help from an expanded line of Tide pods and popular launches in the scent beads category.
These divisions have kept P&G's overall growth pace at 2% this year, up from 1% in fiscal 2016 and ahead of rival Kimberly-Clark, which is expanding at a 1% pace right now.
Raising loads of cash
P&G's net earnings have spiked to over $13 billion from $8.6 billion a year ago, despite the fact that net sales fell slightly over that period. Business results only explain a tiny fraction of that difference, given that operating income barely ticked higher. The far bigger contributor is a $5.2 billion gain that the company booked from the sale of a group of its largest beauty brands.
While the beauty sale represents just a one-time increase to earnings, it had two other positive impacts for shareholders. First, the divestment helped fund increased stock buyback spending that's pushed P&G's outstanding share count lower by 3.5% in the past year. And second, the earnings spike lowered P&G's payout ratio back below 50%, which is a key reason why the company could afford to speed up its dividend growth pace this year.
P&G's cost-cutting program has delivered tangible gains for the business this year, as gross profit margin rose 2.2 percentage points thanks to manufacturing savings that more than offset challenges from rising commodity costs and foreign exchange swings.
The company has already removed $1.4 billion from its annual cost infrastructure and expects to slash a further $10 billion, or $2 billion per year, by 2021. The proceeds are being directed toward ramped-up marketing and innovation support for its core franchises. Management's hope is that these investments will contribute to a market share rebound that shows up in the form of organic sales growth rates that significantly outpace industry peers.