Investors have been losing patience with Procter & Gamble's (NYSE:PG) turnaround strategy lately. Following discouraging market share losses in fiscal 2017, shareholders voted -- against management's recommendation -- to add activist investor Nelson Peltz to the board of directors late last year.

This week, P&G posted its first earnings report since that new board was seated. And while the quarterly numbers didn't show accelerating sales gains, executives did announce improved financial results while hinting at a more aggressive growth strategy.

Let's take a closer look.

A woman measures out laundry detergent.

Image source: Getty Images.

Sluggish sales growth

Revenue rose by 4% to $16.3 billion, but that boost was almost entirely powered by foreign currency shifts. Organic sales, which account for these shifts, inched higher by 1% to mark a slowdown from the prior quarter's 2% gain. At a high level, executives described a challenging sales environment that made it difficult to improve market share. "We have large businesses in several difficult markets," CEO David Taylor said in a press release. "The ecosystems in which we operate around the world," he continued, "are being disrupted and transformed."

Looking deeper into the results, P&G's grooming business shrank by 3% as price cuts in the Gillette shaving franchise were only partially offset by increased volumes. On the positive side, the beauty business expanded 5% thanks to strong demand for ultrapremium products in the SK-II and Olay Skin Care brands. Overall, P&G notched 2% higher volume that was offset by a 1% drop in pricing.

Improving finances

Profit gains modestly outpaced organic revenue growth thanks to several positive financial trends. Productivity improvements added 2 percentage points to gross profit margin, which helped the company almost completely overcome higher input prices. P&G also shaved almost a full percentage point from its overhead expenses. As a result, core earnings expanded by 4% to $1 per share. 

P&G converted 95% of that profit haul to free cash flow, exceeding management's goal of 90%. That translated into $3.4 billion of operating cash flow that the company used almost exclusively for direct cash returns. P&G sent $3.2 billion to shareholders during the quarter, with $1.8 billion coming from its recently increased dividend and $1.4 billion directed toward stock repurchases.

Looking ahead

P&G announced a significant acquisition that will bring consumer health brands from Germany-based Merck KGaA into its portfolio. For the price of 3.4 billion euros, P&G gets a $1 billion annual business that's growing in the mid-single digits thanks to popular over-the-counter franchises like Neurobion, Nasivin, and Bion3. The purchase replaces P&G's joint venture with another company, but it still marks its biggest acquisition since the company started its brand-shedding initiative in 2013. The new business "brings a strong set of brands, products and capabilities, and provides an attractive and complementary footprint to further fuel growth," executives said.

P&G expects the deal to close within the next 18 months. In the meantime, management is projecting continued modest sales growth paired with improving finances. Organic revenue is still expected to come in at about 2%, which is the low end of P&G's initial 2018 target range.

Yet the company lifted its earnings outlook and now sees profits rising by between 6% and 8% rather than the prior range of between 5% and 8%. Cash flow conversion should reach 95% for the year, too, or a bit better than the previous 90% goal. Those financial wins will help keep returns modestly positive while shareholders wait for the accelerating sales gains that management hopes will arrive in 2019.