The world’s leading consumer goods company, Procter & Gamble (NYSE:PG), experienced soft growth in Q3 2013 as organic sales increase of 3% y-o-y came in at the lower end of the guidance supported by 2% growth in volume sales, and a 1% positive impact from higher prices. Net sales stood at $20.6 billion, representing 2% y-o-y positive change, as unfavorable foreign exchange rates lowered net sales by 1%. While the healthcare and baby care divisions led the growth with year-on-year increase of 8% and 4% in organic sales respectively, the other divisions which include beauty, grooming and fabric & home care disappointed with negative or low single-digit growth. 
P&G is set to release its fourth quarter and full year earnings for fiscal 2013 on August 1. In line with the recent trends and management’s outlook, we estimate organic sales growth at about 3% y-o-y. We also expect currency headwinds to have a greater impact sequentially lowering sales by close to 2% as currencies of some of P&G’s markets, including Japan, Brazil, Argentina, Venezuela and India have weakened relative to the dollar. This translates into net sales growth of 1-2% y-o-y. Recent quarterly results of P&G’s competitors, Unilever (NYSE:UL) and Colgate-Palmolive (NYSE:CL) were also impacted due to similar reasons.  
Innovation To Drive Growth In Top Line
The constant innovation of existing products and developing new products has helped P&G win over consumers globally, and across price tiers and preferences, leading to expansion in its market share and top line. The company recently launched new innovations across its Tide, Ariel, Gillette and Iams brands, and intends to continue investing in such innovations to attract customers and grow its business. It also plans to support the launches with increased marketing, better communication, stronger value claims, improved customer service levels and expanded distribution. Additionally, productivity enhancement and cost savings initiatives have allowed the company to reinvest in innovations and marketing. In our view, new product activity is especially important in developed and slow growing markets to lend support to the top line.
Productivity Enhancement And Cost Savings To Support Gross Margins
In 2012, P&G embarked on an ambitious mission to save $10 billion in costs by undertaking a restructuring program across the company. It plans to complete this program by the end of fiscal 2016. Under this program, the company will save $6 billion in costs of goods sold while another $1 billion and $3 billion of savings will come from marketing efficiencies and non-manufacturing overhead, respectively. P&G is also working to reduce its working capital requirements by as much as $2 billion by increasing the number of days it takes to pay its suppliers.
The agenda behind the cost savings and productivity enhancement initiatives is to have financial flexibility in order to maintain investment levels and drive long term growth even in weaker microenvironments. P&G is well ahead of its plans for fiscal year 2013 with 7% increase in manufacturing productivity compared to the targeted 5%. The initiatives have helped P&G offset the impact of innovation related and new production capacity startup costs on its gross margins.  We believe the company will continue to reap benefits from these initiatives.
We will revise our $71 price estimate for P&G based on the Q4 earnings results.Notes: