Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Procter & Gamble Co.'s Growth Stalls

By Demitri Kalogeropoulos - Oct 26, 2015 at 3:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The consumer goods giant today booked a rough quarter.

Source: P&G.

Procter & Gamble ( PG -0.41% ) recently announced earnings results for its fiscal first quarter. The consumer goods giant beat profit expectations but turned in disappointing results on the revenue side.

Here's how the headline numbers stacked up against the pros' forecasts:


Q1 2015 Expected

Q1 2015 Actual


$17.1 billion

$16.5 billion


$0.95 per share

$0.98 per share

"Expected" is the average of the 17 Wall Street analyst who cover the stock. Source: Financial filings.

The growth slowdown continues
The big takeaway is that P&G's demand struggles worsened in the quarter. Organic sales slipped by 1% overall, compared to a 1% gain last quarter.

Dig deeper into the figures, and the picture doesn't look much better. Sales volume fell by 4%, meaning that it was only through significant price increases that P&G was able to manage that 1% organic drop. Volume fell in each of P&G's five product divisions, led by a 6% slump in healthcare goods. Management cited increased competition and an innovative reboot in its oral care segment for that poor result.

Global rival Unilever ( UL -1.06% ), by comparison, recently posted strong organic growth in each of its product units. Volume improved by 4% on the way to a 6% overall organic growth figure. While operating in what it describes as a very weak economic environment, Unilever is still finding a way to grow its business. It's on track to improve sales by as much as 4% this year, while P&G may end up booking zero organic growth.

Major financial wins
Yet the company managed several impressive financial improvements this quarter. Profit margin jumped higher by 3 percentage points thanks to price increases -- along with P&G's aggressive cost cutting.

Source: P&G.

Management has sliced $2 billion out of its annual expense spending. The powerful result of all of that work is hard to see in the reported numbers due to the foreign currency swings that are pressuring profits. This quarter's weak 1% earnings gain, for example, would have been a 12% spike on a currency neutral basis. But P&G will be benefiting from its more efficient operation long after foreign exchange rates stop pinching the bottom line.

Cash flow was also strong at $3.5 billion for the quarter. In fact, P&G's free cash flow amounted to just over 100% of net earnings, which is significantly above management's goal of 90% or better cash flow productivity.

Those financial improvements are helping fund increasing cash returns to shareholders even as reported profits stall. P&G spent $1.9 billion on dividends, and $0.5 billion on stock buybacks this quarter. The company is targeting $17.5 billion in annual cash returns in 2015, up from a $12 billion pace in each of the prior four years.

A slightly better outlook
Three months ago, management warned investors not to expect a quick return to robust sales growth. These latest results show why that caution was warranted. Still, P&G executives believe things will get slightly better over the next nine months. "We expect second quarter organic sales growth to be positive and to further strengthen in the back half [of the year]," CEO A.G. Lafley said in a press release.

That optimism wasn't enough to convince the company to boost its official outlook, though. Management is still forecasting organic growth of somewhere between zero and just slightly positive for the year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
$151.80 (-0.41%) $0.63
Unilever PLC Stock Quote
Unilever PLC
$52.42 (-1.06%) $0.56

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/09/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.