P&G core sales return to growth due to price hikes

By Yashaswini Swamynathan

(Reuters) - Procter & Gamble Co's (NYSE: PG) new chief executive is off to a "nice start" as the company's core sales returned to growth in the second quarter, helped by price hikes and as it shed underperforming brands.

Organic sales - core sales that exclude the impact of currency, divestitures and acquisitions - rose 2 percent in the quarter.

These sales had dropped 1 percent in the previous quarter, marking its first decline since 2008.

P&G has been raising prices more rapidly to offset the stronger dollar's impact. The price hikes helped it boost organic sales in the latest quarter, but led to a drop in volumes across all businesses.

P&G also posted a better-than-expected profit by cutting costs, sending its shares up 2.5 percent to $78.79 on Tuesday, outperforming the broader consumer staples index <.SPLRCS>.

"Today's results, along with increased visibility of the new CEO David Taylor, could move the stock into the $80s in the coming months," SunTrust Robinson Humphrey analyst William Chappell wrote in a note titled, 'Two percent organic growth a "nice start" for new CEO'.

Taylor took the helm in November, in the middle of P&G's turnaround plan.

P&G is selling unprofitable brands and focusing on core brands such as Gillette, Pampers and Tide to revive sluggish growth, which analysts have blamed on the company's slow reaction to trends in top markets such as China.

Taylor has the ability to correct the company's missteps, RBC Capital Markets analyst Nik Modi said.

P&G now expects to reduce non-manufacturing costs by 25-30 percent by 2016, a year ahead of schedule, Chief Financial Officer Jon Moeller said on a conference call.

Moeller said P&G would continue investing despite the strong dollar and expects media spend to increase in double-digits in the second half of 2016.

The company, which gets nearly two-thirds of sales from outside North America, also said it would reduce its focus on unprofitable brands in India in favor of higher-margin products.

P&G said the strong dollar reduced second-quarter sales by 9 percent and in 2016 expects it to reduce sales by 7 percentage points, more than the 5-6 percentage points it estimated earlier.

Overall, full-year sales are still expected to decline in the high-single digits.

P&G's second-quarter sales fell 8.5 percent to $16.92 billion, slightly below analysts average estimate.

Excluding items, it earned $1.04 per share, beating estimates by 6 cents, according to Thomson Reuters I/B/E/S.

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Saumyadeb Chakrabarty and Savio D'Souza)

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