Image source: P&G.
Sometimes the best defense is a good offense. Consumer-goods titan Procter & Gamble (NYSE: PG) recently posted improved fiscal Q4 sales growth thanks to ramped-up advertising and marketing spending. The company still lost market share in many of its key categories, but management was encouraged by the healthier expansion trends.
Here are a few quotes from P&G's latest quarterly conference call that help put the results in perspective for investors (all quotes are from chief financial officer Jon Moeller).
A volume rebound to close the year
By posting 2% higher sales, P&G managed just the second sequential improvement in that metric in over two years. However, while the expansion pace remained far below that of rivals, including Unilever (NYSE: UL)and its 5% organic sales boost, this quarter's growth was driven by higher volume, not just price hikes. In fact, volume improved in each of P&G's five main categories, led by a 5% jump in the healthcare business.
Cleaning up the portfolio
Organic sales would have been higher by a full percentage point after accounting for the hit P&G took in the Venezuela market and the continuing pinch from its portfolio consolidation. The company has discontinued, sold, or consolidated 60 brands in the last two years in hopes of boosting profitability and raising its organic sales growth pace. In the short term, though, that shift is a major headwind.
Choosing its battles
BT -- before tax. Image source: P&G investor presentation.
By the end of fiscal 2017, P&G plans to have exited 105 brands, representing about 6% of its fiscal 2015 profits. Executives chose the remaining product lines because they are growing faster and have higher profit margins than the company average.
Aggressively cutting costs
P&G has already sliced billions out of its expense structure. In the cost of goods category alone, expenses are down $7.2 billion, beating executives' original $6 billion goal by over $1 billion.
Management is doubling down on these efficiency initiatives and believes it can cut another $10 billion out of cost of goods over the next five years.
Where the savings are going
P&G plans to pour most of the proceeds from these cost cuts into areas like advertising and promotions, which should boost sales growth. There's evidence that the strategy is already workingsince this quarter's volume bounce was driven by a big uptick in marketing spending.
P&G expects to raise ad investments by double digits over the coming fiscal year, helping organic growth pick up to 2% from this past year's 1% pace. The outlook implies slight market share losses, though. Unilever is projecting near 5% sales gains this year.
Excess cash will be headed into shareholders' pockets, and with cash productivity at over 100% of earnings, there will be plenty of that to go around. P&G forecasts delivering $22 billion, split between $7 billion of dividends and $15 billion of share repurchases, back to investors over the next 12 months.
Procter & Gamble has now endured three straight years of below-average organic growth. However, if management can hit its broad targets fiscal 2017 will mark a return to improving sales trends that -- P&G hopes -- will be followed by sustainable market share gains and rising profitability.
A secret billion-dollar stock opportunity The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.
Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends 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.