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Procter & Gamble more prepared for recession than in '08, CFO says

The Procter & Gamble Co. is more prepared for an economic downturn than it was a decade ago, the consumer company's CFO said Oct. 22.

Changes to Procter & Gamble's business since the last recession, including a greater focus on products including laundry detergent and shampoo, should help the company avoid taking as large a hit as it did during the last recession, Vice Chairman, COO and CFO Jon Moeller said during a call to discuss the company's first-quarter results for fiscal 2020.

Procter & Gamble beat analysts' expectations for the quarter, reporting organic sales growth of 7% and raising guidance for its full 2020 fiscal year. The company's shares were up 3.8% in late morning trading at $123.55.

Fears of slowing global growth have spooked investors in recent months. The latest sign of trouble came Oct. 16, when U.S. retail sales declined for the first time in seven months against analysts' predictions.

After the housing and financial markets collapsed in 2008, P&G reported organic sales growth mostly in the low single digits, well below more recent sales growth trends. Although Procter and Gamble saw "no signs of weakness" in its categories during the most recent quarter, the company has made multiple changes since the last recession to soften the blow of another downturn, Moeller said.

In recent years, the company has shed brands it considers discretionary and focused on essential products that consumers buy even when household budgets tighten, he said.

Procter & Gamble sold 43 beauty brands to Coty Inc. for $14.81 billion in October 2016. At the same time, the company has purchased smaller brands focused on products that see daily use. These include Native deodorant, which the company acquired in November 2017 for $100 million.

"Generally, we don't see consumers stopping laundry or shampooing or conditioning or feminine protection during a recession," Moeller said.

Adding products with features that differ from those of its competitors and introducing new items at different price points also could help during a recession if customers look for value-priced alternatives to the largest brands, he added.

"We have seen continued sequential improvement on the margin," Moeller said of P&G's first quarter.

"But that can change pretty quickly, as we've all witnessed during our lifetimes," he added.

The company has posted above-forecast earnings in recent quarters. Before the fourth quarter of fiscal 2019, the last time organic sales grew 7% was 2006.

Strong top-line and bottom-line results will make for tougher comparison points going into the rest of 2020, Moeller said.

All five of the company's product categories grew sales on an organic basis during the quarter, with beauty growing the fastest at 10%. Grooming posted a 1% sales increase — the slowest of all five divisions.

Grooming, which includes P&G's Gillette razor brand, has posted sales in recent years that have lagged the company's other categories. Speaking during the post-earnings call, Moeller said Procter & Gamble is attempting to improve grooming product sales in developing markets, as well as encouraging more shaving in developed economies by introducing more razors with skin-protecting features.