(Reuters) - Procter & Gamble Co (PG.N) forecast a slightly more upbeat 2014 than expected on Thursday as Chief Executive A.G. Lafley tries to get the world’s largest household products maker back on track without sacrificing profitability.
P&G reported lower quarterly earnings but they still topped the company’s muted expectations from April. The shares rose 1.4 percent to $81.47.
P&G, maker of Tide detergent and Pampers diapers, brought back Lafley in late May to replace Bob McDonald, who had struggled to respond to thrifty consumer spending, sparked by the recession, create new product hits, and expand in fast-growing international markets.
In the two months since he returned, Lafley has done a “deep dive” to figure out what needs fixing. He said the current fiscal 2014 would be a “transition” year, with fiscal 2013 a “stepping stone.”
P&G forecast 2014 core earnings per share rising 5 percent to 7 percent, including an expected hit of 6 percentage points from foreign exchange fluctuations. Before Thursday, expectations were high that P&G’s outlook would be much weaker than the 6.7 percent growth that analysts anticipated.
“This strikes me as better than the whisper numbers that I had been hearing,” David Kolpak, equity research analyst at Victory Capital Management. “I think that’s prudent, that’s what he ought to be doing at this point. You don’t want to overpromise out of the gate.”
With Lafley back at the helm, P&G sees more opportunities to cut costs, such as trimming marketing expenses as a percentage of sales, and wants to better understand what consumers want. He has already split P&G into four businesses, hoping the new structure will boost efficiency.
“We know we’re not winning like we know we can,” Lafley told analysts and investors on a conference call.
“We simply have to execute better,” he added later.
Lafley returned one month before the fiscal year ended, so recent gains in market share and sales came under McDonald.
Under McDonald, P&G cut production and marketing costs and came out with products such as Tide Pods, which has seen some early success. Under a $10 billion restructuring announced in February 2012, P&G has cut 7,000 jobs through June, or 1,300 more than its target.
P&G’s quarterly net profit dropped nearly 50 percent but core earnings per share, which strip out various factors and are more closely watched by Wall Street, fell just 4 percent.
“To me, this is the quarter that they really needed to have. It wasn’t a blowout quarter, but I don’t think anybody expected that,” said David Blount, co-portfolio manager at Eagle Asset Management, which owned more than 350,000 P&G shares at June 30.
P&G said it would no longer give quarterly forecasts, instead providing an annual outlook with updates as the year progresses. It wants investors to focus on longer-term growth.
P&G expects organic sales, which strip out the impact of currency changes, acquisitions and divestitures, to rise 3 percent to 4 percent as the overall market grows at about 3.5 percent.
Blount said the annual sales forecast looked conservative since P&G usually talks about beating the market, not performing like the rest of the industry.
Rivals include Europe’s Unilever (UNc.AS)(ULVR.L)(UN.N) and L‘Oreal (OREP.PA) and U.S. companies such as Colgate-Palmolive Co (CL.N), Kimberly-Clark Corp (KMB.N), Energizer Holdings Inc (ENR.N) and Clorox Co (CLX.N).
While cost savings and improved productivity are necessary, “sales growth is the key here,” Blount said.
P&G’s core earnings per share fell to 79 cents from 82 cents a year earlier, beating its April forecast of 69 cents to 77 cents and analysts’ average estimate of 77 cents, according to Thomson Reuters I/B/E/S. Sales rose 2.2 percent to $20.66 billion, topping analysts’ average target of $20.55 billion.
Also Tuesday, Clorox said its quarterly profit increased to $1.37 per share, topping the analysts’ view of $1.34, while sales rose less than expected. The bleach maker stood by its fiscal 2014 forecast, but said the recent rise of the U.S. dollar and volatile commodity prices could weigh on results.
Through Wednesday, P&G’s stock had climbed 2 percent since Lafley’s May return.
Clorox fell 0.6 percent to $85.45.
Reporting by Jessica Wohl in Chicago; Editing by Lisa Von Ahn and Jeffrey Benkoe