P&G 2019 sales strong but Gillette write-down drags down profits

07-Aug-2019 - Last updated on 07-Aug-2019 at 09:50 GMT

'Lower shaving frequency' in developed markets contributed to $8bn Gillette write-down - Getty Images

Proctor & Gamble has driven full-year 2019 net sales up 1% but a multi-billion write-down taken on its shaving brand Gillette has contributed to a net profit loss of close to €5bn.

The US-headquartered beauty and home care major reported net sales of €15.27 billion ($17.1bn) for the fourth quarter (Q4) of 2019, up 4% on the previous year, pushing full-year 2019 net sales up 1% to €60.47bn ($67.7bn). However, it reported a total net earnings loss of around €4.64bn ($5.2bn) due to a charge of €7.1bn ($8bn) taken on its shave care brand Gillette.

P&G said the non-cash charge was primarily due to “significant currency devaluations” and “market contraction of blades and razors, primarily in developed markets”.

Jon Moeller, vice chairman, COO and CFO of P&G, told investors in the company’s earnings call last week “lower shaving frequency” had reduced the size of the blades and razors market and “new competitors” with product pricing below average had also had some impact.

We’ve ‘met or exceeded’ core targets

Despite this, P&G’s chairman, president and CEO David Taylor said the company had “met or exceeded” its core targets for sales, profit and cash in 2019.

“We built sales, market share and profit margin momentum throughout the year, ending with our strongest quarter of organic sales growth in well over a decade,” Taylor said. Organic sales for Q4 2019 were up 7% and up 5% for the full year.

SKI-II has contributed strongly to beauty sales for P&G - Getty Images

During Q4, it was P&G’s personal health care and fabric and home care businesses driving most improvement, with net sales up 13% and 5%, respectively, on the previous year.

The company’s beauty arm – consisting of skin and personal care brands Olay, Native and SK-II and hair care brands Herbal Essences, Pantene and Head & Shoulders, among others – was up 3% in net sales and up 2% in total net earnings for Q4, driven largely by the super-premium SKI-II brand that had successfully implemented AI supported technologies providing consumers recommendations based on smart skin scans and enabling virtual product browsing in-store. Total profits in beauty for 2019 were up 14% to €2.34bn ($2.63bn).

Baby, feminine and family care net sales were up 1% and net earnings up 41%. Total profit for 2019 of this business unit was up 21% to €2.43bn ($2.73bn). Grooming, however, reported a net sales decline of 3%, largely due to the $8bn write-down on Gillette, given total net earnings remained up 35% for the quarter and total 2019 profit up 7% at €1.35bn ($1.52bn).

Future push in a ‘competitive’ environment

Taylor said P&G was on-track to deliver a 3-4% all-in sales growth for 2020 and would be focused on four core pillars to do so: superiority, productivity, constructive disruption and organisation and culture.

Driving focus in these areas, he said, would “deliver sustainable, balanced top-line and bottom-line growth” and strong cash generation, despite operating in a “challenging, competitive and macroeconomic environment”.

“…We know our work isn’t finished yet. To further strengthen results, we will continue to accelerate the pace of change. The macro environment and strong competition are sure to present new challenges in the year ahead, but we’re better positioned to manage through these challenges,” he told investors.

“...We’re mindful of, and aware of, what competition does but we’ve made sure we don’t get distracted on chasing a specific competition and/or innovation,” he added.