8% drop in P&G beauty profits

Proctor & Gamble (P&G) has reported an 8% drop in beauty profits despite achieving 4% overall sales growth for the October-December 2011 quarter, compared to the same period the previous year. A 1% increase in beauty net sales to $5.4 billion, including a 2% rise in sales of organic products, was not enough to offset the impact of higher commodity costs, as net earnings for Q4 dropped to $802 million.

While price increases added 3% to net sales growth, disproportionate growth in developing regions, which have lower than average selling prices, and a decrease in premium-priced product categories reduced mix net sales by 4%.

The volume of P&G beauty products sold in developing markets showed high single-digit growth but decreased by mid-single digits in developed regions. Overall sales volumes of hair care products rose by mid-single digits as a result of product innovation activity and distribution expansion in Asia, while the volume of skin care, personal care and cosmetics products decreased by low single digits following the divestiture of Zest and Infasil.

Further, market contraction in Europe, distribution share losses and non-strategic brand discontinuations resulted in a high single digit decline in the volume of salon professional products. And minor brand divestitures accompanied by a strong initiative base in the prior year, offset by current year market growth and initiatives for SK-II drove the volume of prestige products down by low single digits.

“We continue to make progress against our key business priorities in a difficult macroeconomic environment,” said P&G chair, president and ceo Bob McDonald. “With the easing of commodity cost comparisons over the next two quarters, continued solid top-line growth and cost savings progress, we expect operating profit growth to accelerate in the second half of the fiscal year.”