The pressure is rising on Procter & Gamble (NYSE:PG) to show evidence of a turnaround after a string of disappointing market share losses. The stock is underperforming the broader market, and the consumer products giant is facing a proxy challenge from an activist investor.
Against that dicey backdrop, P&G's management team held a conference call with investors this week to discuss its latest operating results and outline its plan for the coming fiscal year. Here are the highlights from that chat.
Market share progress
We accelerated organic sales growth by more than a point from fiscal 2016 to fiscal 2017 in a market that decelerated by more than a point. -- CEO David Taylor
P&G has been falling short of its core operating goal of gaining market share on an annual basis. It didn't reverse that unfortunate trend in fiscal 2017, but the company did make positive progress. P&G's organic sales growth sped up to a 2% pace from 1% as it held or improved market share in most of its markets.
We've grown core operating margin by 270 basis points, [or] 610 basis points excluding foreign exchange. Our core after-tax margin now stands at about 17%, second highest in our industry. -- Chief Financial Officer Jon Moeller
While P&G has no control over slowing industry growth, it does have power over its cost structure. And management exceeded its expense-slashing goals this quarter, which helped operating margin tick higher by almost a full percentage point. Zooming out, that profitability metric has risen by 2 percentage points in the past four fiscal years to put P&G firmly in a leadership position among peers.
Executives see room for a further $8 billion of savings through a productivity initiative that's set to wrap up in fiscal 2020.
The online sales channel
Online organic sales were up around 30% for the period, significantly outpacing offline sales. Online sales represented more than 5% of our total business in fiscal 2017. -- Moeller
The e-commerce channel was one of P&G's biggest growth areas this year. In fact, the segment is now worth over $3 billion, which is more than the combined total from its three biggest rivals.
CEO David Taylor and his team credit retailing partnerships for much of that success. The Tide detergent brand, for example is a top seller on Amazon. P&G also generates significant sales volume from Wal-Mart's online platform, executives explained.
Playing defense in shaving
North America shave care grew volume in the April/June quarter for the first time after eight consecutive quarters of volume declines. -- Taylor
The Gillette razors and blade business has seen its market share slump to 65% from 70% over the past few years thanks to intense competition from value-based store brands and online subscription services like Unilever's (NYSE:UL) Dollar Shave Club. P&G made two big changes aimed at neutralizing those threats.
It cut prices across the portfolio, and it relaunched its own subscription offering under the name Gillette on demand. While being cautious that it's still early in the process, management was encouraged to see shaving volume tick higher in the core U.S. market for the first time in two years.
We aren't satisfied with just being a little bit better than last year. -- Taylor
P&G admits that, while management met its broad 2017 targets, executives still can't claim that a rebound has taken hold. In mapping out a return to market share growth, executives pointed investors to the success they've had in fabric care, where a strong mix of product innovation, packaging, and marketing has produced a long streak of profitable gains.
The company's challenge remains finding a way to apply that winning strategy to its other franchises. The good news for investors is that P&G's 2018 outlook calls for a tiny step in the right direction, with organic sales growth rising to between 2% and 3%. Management noted that shareholders have a right to expect more from the consumer products leader, but that they're focused on the long term. "We'll measure our progress in years, not quarters," Taylor said.