Procter & Gamble’s (PG) incoming CEO, David Taylor, will have a formidable task on his hands when he takes the reins on November 1. He will need to halt the consumer product giant’s slide in sales amid stiff competition within the emerging markets the company is focusing on.
In its first fiscal quarter, which ran from July to September, sales at P&G dropped by 12% from the same quarter last year, to $16.5 billion. While much of that is due to P&G’s decision to shed underperforming brands, the result missed the $17 billion Wall Street analysts had projected. Sales volumes in all of P&G’s product categories fell, and the company appears to be losing market share in some key areas, including the U.S. (To be fair, sales got slammed by the strong U.S. dollar.)
Taylor, who will succeed A.G. Lafley, starts as CEO at a time when P&G has made enormous progress in slimming down its portfolio to focus on a smaller number of key brands, such as Tide, Gillette, and Pampers, to foster innovation and boost profitability. Earlier this year, it sold 43 beauty brands to Coty (COTY) for $12.5 billion. (Last week, Fortune published a to-do list for Taylor.)
Lafley, a former P&G CEO who returned in 2013 to replace his own hand-picked successor, has focused on cutting costs. And that helped P&G post an adjusted profit per share of 98 cents, besting the 95 cents analysts expected and sending shares soaring. And P&G’s gross margin rose to 50.7% from 48.1%, helped by lower input costs.
But the company, which forecast sales growth for the current quarter (excluding the effect of brands it has sold off in the last year), acknowledged it has to get revenue back on track.
“We don’t like the top line situation. We don’t accept the top line situation. We will fix the top line situation,” CFO Jon Moeller told Wall Street analysts.
And with shares up 2% midday, it looks like Wall Street has confidence in the company. Mark Astrachan, a Stifel Financial analyst, said in a research note quoted by Bloomberg that even though the sales performance suggests a loss of market share, P&G’s gross margin results leave him “encouraged.”
Still, P&G, which gets two-thirds of its revenue from abroad, is fighting tough competitors in emerging markets. Unilever, the maker of Dove soap among other brands, last week reported that sales rose 4.8% last quarter, with both volume and pricing up. And according to Reuters, Unilever’s CEO Paul Polman said in a statement there was “no immediate sign of getting help from an improving global economy.”
Moeller made it clear that P&G wouldn’t sacrifice margins to lift sales: “We need to do that in ways that are certain and sustainable.”