Strong Dollar Weighs on P&G, But Wide Moat Intact

While

Excluding foreign currency rates and one-time charges (including a $0.26 per share impairment related to its battery business), sales ticked up 2%, driven by higher prices and favorable product and geographic mix, and operating margins contracted 60 basis points to 20.2%. We still believe efforts to bring new products to market that prove valuable to consumers are paying off. In fact,

From a category perspective, fabric and home care and baby, feminine, and family care proved bright spots, with underlying sales up 3% and 4%, respectively. However, beauty remains a challenge; segment organic sales ticked down 1%. As such, we view the recent appointment of David Taylor to the helm of this business (while he also continues to run the global health and grooming operations) favorably--a fresh perspective might be just what is needed to put this business on more stable ground. Olay is still a struggle, though Pantene continues to improve, posting seven straight months of market share gains. We aren’t blind to the fact, though, that the performance in this category could prove lumpy given the fierce competitive dynamics of the U.S. hair care space.

P&G also disclosed that to date, 35 brands (including the pet-care and battery business) have been sold or discontinued or will be consolidated, out of the 90-100 it plans to shed. We continue to believe that P&G's efforts to focus on core brands will aid financial performance without sacrificing scale and negotiating leverage with retailers.

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