Procter & Gamble (PG -1.64%) recently closed the books on a banner fiscal year. The consumer products giant overcame major headwinds, including cost spikes, sharp foreign currency moves, and aggressive competition, to achieve a level of growth that shareholders haven't seen since before it rebooted its portfolio in 2012. Better yet, P&G's latest quarterly sales increase was its fastest in over a decade.
A lot of things had to go right for the company to expand that quickly, and CEO David Taylor and his team discussed those factors in a conference call with investors. Executives also detailed why they're projecting robust growth ahead, although at a slower pace than P&G reached over the past six months.
Let's take a closer look.
Momentum is building
We delivered our fourth strong quarter in a row, continue to build top-line momentum and improving the quality of our bottom-line results.
The trend of accelerating growth is impossible to miss. P&G raised its 2019 outlook in each of the last two quarters, but the fiscal fourth-quarter results still blew past targets as organic sales landed at 7%. That boost pushed 2019's expansion rate to 5%, well above last year's 3% and P&G's initial goal of between 2% and 4% growth.
Management went into more detail on the key expansion drivers, including the U.S. market, where most of its brands gained or protected share. In China, sales gains improved to 10% for the year from 7% in 2018. And e-commerce, which is now responsible for over 8% of sales, grew 25%. "The breadth of growth," Taylor said, "gives me confidence that the strategies and focus areas that are guiding our choices are the right ones."
Financial strength in a tough market
All of this progress came against strong headwinds.
-- CFO Jon Moeller
Adjusted core profit growth was 7% for the year, translating into modestly higher profitability. Management highlighted the fact that this margin boost came despite large spikes in commodity and transportation costs, unfavorable currency exchange rate shifts, and tariffs.
Together, these temporary issues offset many of the gains P&G made with its cost-cutting program and its pricing initiatives. Overall, the cost and tariff challenges removed $1.4 billion from profits in 2019, executives estimated, or 13 percentage points from earnings growth.
Looking out to 2020
Our guidance range brackets current market growth with a bias toward continued share growth, while still expecting a strong competitive response.
Executives were careful not to project a continuation of the 7% growth rate investors saw in the most recent quarter, or even the 5% increase P&G notched in the fiscal third quarter. The company faces a tough selling environment packed with rivals aiming to stall its newfound momentum. Global industry growth rates could slow, too, especially in international markets.
As a result, P&G's first official outlook for 2020 calls for organic sales to rise by between 3% and 4% to mark a slowdown from the past year's 5% spike. The low end of that range implies essentially zero market-share growth, while the middle and top ranges translate into continued acceleration for the maker of Pampers diapers and Tide laundry detergent.
Executives sounded optimistic about the biggest tailwinds that could derail a rebound, namely competitive price cuts and macroeconomic shifts. "We're better positioned to manage through these challenges than we've been in many years," Taylor said.