P&G profit beats on cost cuts, demand for home care goods

October 25, 2016 7:11 AM EDT

Procter & Gamble's Tide is seen in a store in Manhattan, New York, U.S., August 1, 2016. REUTERS/Andrew Kelly


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By Sruthi Ramakrishnan

(Reuters) - Procter & Gamble Co (NYSE: PG), the maker of Tide detergent and Pampers diapers, reported a better-than-expected quarterly profit, helped by cost-cutting and strong demand for its baby, feminine and home care products.

P&G's shares were up 4.6 percent at $87.97 on Tuesday morning.

The company has been selling off unprofitable brands and focusing on core brands such as Tide, Pampers and Gillette to revive sluggish sales. P&G sold 41 of its brands, including Clairol and Wella, to Coty Inc (NYSE: COTY) in a $12.5 billion deal earlier this month.

P&G is also planning to save as much as $10 billion in costs over the next five years, after cutting the same amount in costs over the last five years.

The company plans to reinvest a significant portion of savings from the new plan in product and packaging improvement, research and development, and expanding sales coverage, P&G's Chief Financial Officer Jon Moeller said on a media call.

Organic sales in P&G's fabric and home care business - its largest - rose 4 percent in the first quarter, while those in baby, feminine and family care, the second largest, rose 2 percent.

The two businesses, which house brands such as Tide, Febreze, Pampers and Tampex, together accounted for 60 percent of the company's total revenue.

P&G's revenue was driven by "solid" volume growth of 3 percent in the quarter, in contrast to rivals such as Unilever , whose sales were mainly propped up by price hikes, Jefferies analyst Kevin Grundy wrote in a note.

Net sales remained largely flat at $16.52 billion in the quarter ended Sept. 30, but beat the average estimate of $16.49 billion, according to Thomson Reuters I/B/E/S.

Sales in the United Kingdom, P&G's largest European market, fell 2 percent in the quarter, Moeller said.

Britain's vote to leave the European Union has caused a plunge in the pound, leading consumer goods makers such as Unilever to attempt to raise prices in the market.

Moeller declined to discuss P&G's pricing strategy, but said the UK continued to be a "very challenging and highly promotional" market.

P&G said net income attributable to the company rose 4.3 percent to $2.71 billion, or 96 cents per share.

Excluding items, P&G earned $1.03 per share from continuing operations, beating the average analyst estimate of 98 cents.

P&G's quarterly sales have been mostly falling for more than three years, as the company has been cutting its brand portfolio.

(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Martina D'Couto)



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