Why P&G’s Baby Care Business Reported Flat 2Q16 Results

P&G’s Stock Rose on Better-Than-Expected Fiscal 2Q16 Earnings

(Continued from Prior Part)

Fiscal 2Q16 baby care revenue overview

Procter & Gamble’s (PG) Baby, Feminine, and Family Care segment’s net revenue came in at $4.7 billion in fiscal 2Q16. This was 9.7% lower than in fiscal 2Q15. Organic sales for this segment were unchanged versus a year ago as pricing benefits were offset by lower organic volume.

Decline in volume

Baby care organic sales declined as strong growth on Pampers in the US was more than offset by softness in international markets due to increased competition by Kimberly-Clark’s (KMB) Huggies and increased pricing. However, Pampers value share was up more than one point versus a year ago behind premium innovation.

Feminine care organic sales grew in the mid-single digits versus a year ago on strong share growth in the US and pricing in developing markets. Family Care organic sales were unchanged as increases in North America were offset by strategic distribution decreases in Mexico.

Changing consumer habits have increased global competition. Like P&G, Clorox (CLX) and Unilever (UL) focus on innovation and new technology to improve consumer value.

Improving point-of-market entry

The company will increase investments in Luvs diapers in the second half of the fiscal year to address share declines following a significant price reduction by competitor Kimberly-Clark. Also, P&G aims to accelerate premium innovation on taped and pull-on diapers to restore its competitiveness. The company is also improving point-of-market entry programs to develop higher brand awareness among new moms.

Reducing agency relationships

P&G is planning to simplify and reduce its number of agency relationships. The company plans to focus on upgrading agency capability to improve creative quality and communication effectiveness at a lower cost. For example, P&G aims to focus on the profitable premium-tier tissues in Mexico.

P&G makes up ~1.1% of the iShares Dow Jones U.S. ETF (IYY). In the coming articles, we will take a look at P&G’s margins, stock movement, and valuations

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - P&G Beat Fiscal 2Q16 Earnings Estimates but Missed Sales Estimates

• Part 2 - P&G’s Revenue Continued Its Fall in Fiscal 2Q16

• Part 3 - P&G’s Beauty Segment Improved in Fiscal 2Q16