Procter & Gamble (NYSE:PG) shareholders have good reasons to feel optimistic again. After missing operating targets in each of the last two fiscal years, the consumer products giant posted a sharp revenue jump in 2019's fiscal first quarter, suggesting its rebound initiatives are finally gaining traction.
The global consumer staples industry still faces major challenges, and P&G's next few quarterly reports might be especially volatile as the company rolls out price increases across most of its portfolio. However, the wider trends support management's goal of faster sales gains and healthy earnings growth in 2019, executives explained in a recent conference call with investors.
Below, we'll look at a few key highlights from that presentation.
Things are getting better
We are accelerating organic sales growth, driven by strong volume and consumption growth, with market shares improving and now growing on an aggregate basis. -- CFO Jon Moeller
P&G's organic sales gains sped up to a 4% boost this quarter. That marked a solid acceleration over the prior quarter's 1% uptick and was also the company's best result in several years.
More importantly, the growth translated into overall market-share gains, which have been hard to come by in recent years. Executives said the positive trend is clear across its portfolio and in key regions like the U.S. P&G held or gained share in one-third of its competitive niches around the world, management said, up from 26% in the prior fiscal year.
We're growing...volume share on a past one month, three-month, six-month and 12-month basis. But we are going to continue to face challenges from value-tier competition in-store and online in several markets. -- Moeller
The competitive landscape is still brutal, with global rivals, e-commerce specialists, and smaller local competitors all aggressively working to chip away at P&G's dominant positions in niches like diapers, razors, and laundry care. The Gillette shaving business in the U.S., for example, is still losing ground today, although at a slower pace than in past quarters.
Add regional issues like economic disruptions in markets like Iran, Egypt, and Saudi Arabia, and it's clear that P&G likely hasn't left its slow-growth days completely behind it. "Top-line challenges remain," Moeller cautioned, "and improvement won't come in the form of a straight line."
Here comes a big test
Pricing should turn progressively more positive as we go through the year, but this will increase volume uncertainty and volatility. -- Moeller
Prices held steady overall this quarter, and sales volumes marched higher across each of P&G's five core product categories. But shareholders can expect far more volatility in these key growth figures ahead.
After all, P&G is raising prices on a substantial portion of its products over the next few months, both in developing markets and in the U.S. These moves follow more than a year of increased input costs that have eaten into its profits.
P&G resisted price increases as long as it could, since it wanted to protect sales volumes in an overall sluggish industry. The boosts that apply over the next few quarters might still open the door for competitors to move in with lower-priced products -- and in some areas, they could send broader consumption lower and cause P&G to reverse itself. "We'll simply have to adjust as we go and as we learn," Moeller said.
The good news is that P&G's volume and market-share trends are better than they've been in years, and that should provide solid support as it passes along higher costs to its customers and aims to achieve a full year of modest market-share growth in fiscal 2019.