Shares of Procter & Gamble(NYSE:PG) fell 4% yesterday on a disappointing earnings report. The venerable consumer products giant said earnings sunk 31% as a stronger dollar weighed on sales abroad. Currency fluctuations also caused the maker of everything from Tide detergent to Pampers diapers to lower its 2015 guidance, saying it expects a 5% decline in revenue and a 12% drop in earnings. 

P&G is one of the most respected companies on the market, and the stock is widely regarded as a must-have for income investors. A dividend aristocrat, the company has raised its dividend 58 years in a row, now offering a 2.9% yield. The projected decline in earnings should cause some concern among investors, but further down the report, there is a much more frightening number -- for the second quarter in a row, volume sales were flat. 

Why volume growth is so important
Consumer goods companies like Procter & Gamble have two ways of increasing sales. They can either sell more units, lifting volume sales, or raise prices. Selling more units is by far the more desirable of the two as prices can only be raised so much. In the past quarter, P&G saw volume gains in just one of its five major segments, Fabric Care and Home Care. 

Not only is this a sign that Procter & Gamble is facing sales growth challenges in ways unrelated to currency translation, but it also means the company is losing market share to competitors.

Though slowing growth in much of the world has grabbed headlines, the global economy is still expanding, and the U.S. is looking stronger than at any time since the recession. Consumer confidence is at levels not seen since 2007, and the unemployment rate has fallen below the Fed target of 6%.

For the fourth quarter, sales were up 6.1% from the year before at health and personal care stores, a category that should be P&G's strongest in retail, and sales at food and beverage stores were up 3.2%. Global GDP, meanwhile, was projected to grow 3.3% last year. On both counts, it appears the domestic and global economy is outgrowing Procter & Gamble, which derives two-thirds of its sales from outside the U.S. 

Where is that share going?
For the quarter, P&G said it held market share in Latin America, Europe, India, and the Middle East, but lost ground in China and Japan, where the market has become more promotional. But market share concerns aren't new for the Crest-maker. The company lost share in more than half of its businesses in the first quarter of 2012, as it raised prices to absorb higher commodity costs. 

Innovation has also slowed at a company once known for pioneering new product categories such as disposable diapers and teeth-cleaning Crest white strips. R&D spending has fallen from a peak in the late 1990s when the company dedicated nearly 5% of sales to research and development, much more than rivals. Today, however, P&G just sits in the middle of the pack. 

As a result, the company has lost share to competitors big and small alike. Unilever nearly doubled its share of the U.S. hair care market at P&G's expense, while start-ups like Hello oral care and 1-800-razors are grabbing share in their respective categories. 

Get smaller to get bigger
P&G's recent strategy has been to divest from non-core brands and narrow its portfolio down to 70 to 80 brands on which it can better focus. Recently, it sold Duracell to Berkshire Hathaway and the Camay and Zest soap brands to Unilever. With market share flagging, a better focus on core brands may be needed, but it's no guarantee of renewed growth.

Earnings growth has become largely dependent on share buybacks and cost-cutting, which aren't viable long-term growth strategies. P&G needs to find a way to innovate and grow organically once again.

Household products stocks like P&G, which tend to pay good dividends, have jumped as bond rates remain near record lows, but at a P/E of 24 times, the stock is pricey for a company with no unit growth and looks particularly vulnerable. If interest rates rise, investors may move out of slow-growth dividend stocks like the Gillette parent, leaving P&G with bigger problems than currency valuations.