PROCTER & Gamble, the world’s largest household products maker, reported a dip in quarterly profit yesterday as its push in emerging markets led to a lower gross profit margin.
Chief financial officer Jon Moeller said that sales in emerging markets had risen eight per cent during the second quarter, easily outpacing developed markets, where sales barely edged up.
P&G’s gross margin is lower in those markets as the company establishes itself. Still, the costs are worth paying, said one investor.
“The emerging markets are definitely the future for P&G,” said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel, which manages about $11bn and has long owned P&G and Kimberly-Clark shares.
Mr Moeller said its market shares in both emerging and developed sectors had held steady.
Earlier this weak, rival Unilever – which owns factories in Leeds – said it would stick to its emerging markets growth strategy as a fourth-quarter recovery in sales there boosted 2013 results.
P&G’s gross profit margin slipped 0.9 percentage points, in part because of stagnant sales of its beauty products, which have higher margins. The margins were helped by lower manufacturing costs.
P&G, the maker of Pampers and Tide detergent, left its 2014 forecasts unchanged. It still expects organic sales, which strip out the impact of currency changes as well as acquisitions and divestitures, to rise three per cent to four per cent, and core earnings to rise five per cent to seven per cent.
“It is reassuring to see it has confidence it can hit the numbers, despite the weak categories,” said JP Morgan.
The company’s beauty division continued to struggle during the quarter, with organic sales unchanged as skin care results slipped.
P&G’s health care segment reported the fastest growth, rising five per cent.
The company earned $3.43bn in its fiscal second quarter ending December 31, down from $4.06bn a year earlier.
P&G announced a deal with Leeds University in October with the aim of harnessing academic research to develop new hi-tech products.
The strategic relationship represents a new way of getting university researchers and industrialists working together, according to Sir Alan Langlands, the vice-chancellor.
P&G and the university have a long-standing partnership, with more than 20 joint research projects currently underway, but the university said that the new approach will more thoroughly integrate planning and operations.