Procter and Gamble Co.’s (P&G) March quarter results were greeted with dismay by analysts concerned about its performance.
The company said price increases and stiff competition in its main markets affected volume growth.
Its performance in Asia was good, however, and its fabric wash shipments were up 20% year-on-year (y-o-y), while that of shampoos were up by more than 50%, driven by the sales of its Pantene brand. Both these categories, unfortunately, operate under its wholly owned subsidiaries.
P&G’s drive for growth in emerging markets has also lifted the growth levels of its listed subsidiaries in India— Procter and Gamble Hygiene and Health Care Ltd, which sells the Vicks and Whisper brands, and Gillette India Ltd, which sells Gillette shaving and related products, Oral-B dental products and Duracell batteries. The focus on growth at a time when input costs are on the rise does put pressure on the margins, but a higher revenue base means that profit growth can still be healthy.
In the March quarter, P&G Hygiene’s sales rose 39.2% y-o-y to Rs326.20?crore, with sales of Whisper rising 30% and that of Vicks by 37%.
Graphics by Sandeep Bhatnagar/Mint; picture by Pradeep Gaur/Mint
Gillette, too, saw good growth, with sales rising 26.2% y-o-y, but a little slower than the 28.6% growth seen in the December quarter.
Both companies benefited from the sales of new products, a drive to expand distribution and higher spending on marketing.
Advertising expenses for P&G Hygiene rose 38.6%, while that for Gillette increased by a more modest 15%. Material costs grew ahead of sales for both companies, indicating that input cost pressures continue.
The product mix also made a difference to margins, especially for Gillette, which is marketing a low-cost razor. Operating profit margins for both firms declined, but they managed to grow profits.
The trends are reassuring for both companies as sales growth remains healthy and the focus remains on growing the business despite rising input costs.
P&G Hygiene is in a relatively better position because it has just two categories to invest in, and it has a strong position in both. Gillette is trying to expand the twin-edge category and grow in the highly competitive batteries and oral care markets.
P&G intends to launch a toothpaste brand in India. So Gillette’s margin pressures may not go away too soon.
The investors in these companies should be prepared for the long haul as their focus—in line with P&G’s desire to grow faster in the emerging markets —will be on sales growth rather than on profitability in the near to medium term.
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