[ticker coverage]Has Procter & Gamble's Growth Just Begun?

By Markets Fool.com

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Procter & Gamble (NYSE: PG) recently gave investors a big reason to feel bullish about its growth outlook. After a long period of flat or declining sales volumes, the company managed upticks across each of its five product divisions last quarter. That improvement led to a sequential increase in organic revenue growth for just the second time in over two years.

And if you believe management, P&G is just at the start of what could become a long streak of above-average growth numbers. Let's take a closer look at the consumer goods giant's prospects for a sustained rebound.

Recent wins

The best news from P&G's most recent quarter was its improving organic growth metric. Sales rose at 2% pace, compared to 1% in the prior quarter. Look deeper and there's even more cause for celebration: The growth was powered by volume gains and not just higher prices. That's important because it suggests robust demand trends that P&G can build on in future quarters.

On the other hand, the company is still having trouble defending its market share from a wide range of competitors. Kimberly-Clarkmanaged 4% higher volume last quarter on its way to a 3% boost in overall organic sales. A 2% volume gain for Unilever, meanwhile, helped it outperform P&G in broad growth, too.

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The pessimistic way to read that result would be to knock P&G for losing ground to rivals even during its modest rebound. Yet investors could also see this as good news in that it shows that stronger growth is possible even if the weak global selling environment doesn't improve over the short term.

Bright possibilities

CEO David Taylor and his executive team believe they can achieve "balanced" growth soon, which they define as strong sales gains paired with healthy improvements in both profits and cash flow.

Investors have a good idea what that would look like. Now that the company's portfolio transformation is complete, P&G is aiming for organic growth that's a full percentage point higherthan before -- in addition to a 2-percentage-point improvement in operating margin.

The latest quarter's approach shows how P&G might achieve this aggressively optimistic result. Executives directed cash raised from its massive cost-cutting initiative toward marketing and innovation. The marketing payoff was significant thanks to initiatives like getting trial runs of the latest Gillette razor into the hands of millions of young men, or introducing 70% of new moms to Pampers diapers.

Prepare for a slow rebound

Even if this strategy continues to work, investors shouldn't expect a quick return to market-thumping growth. P&G projects that the next 12 months will bring organic gains of 2%. Sure, that's a solid improvement over last year's 1% uptick, but it still implies flat or shrinking market share across much of the portfolio.

With shares near all-time highs, investors are betting that Procter & Gamble is on the cusp of a prolonged growth rebound. In any case, it's very likely that the company will produce higher profits and a significant boost in cash flow. Those wins at least will power surging cash returns to shareholders over the next few years.

But for a new growth trajectory to take hold, P&G will need to show several consecutive quarters of positive sales volumes -- ideally leading to overall organic growth that matches or exceeds that of its global rivals. A change of that magnitude isn't easy for a $240 billion business like P&G's. However, with the help of a revamped portfolio and major investments in the operations, the company has its best chance in years at speeding up its sales gains.

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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Kimberly-Clark, Procter and Gamble, and Unilever. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.