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Marketing Lifts P&G

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BOSTON Procter & Gamble credited marketing improvements as part of the reason for its better-than-expected first quarter of fiscal 2007.

Despite recent commodity price increases, the company's net sales grew 27 percent to $18.7 billion behind strong results on the base business and on Gillette.

"We're getting real traction from our marketing ROI and media-mix modeling," CEO A.G. Lafley said in a conference call with analysts today. "That means we're better able to reallocate" what the company spends on marketing. Lafley declined to elaborate on exactly how P&G is changing its spend. He did say that this had helped improve the margins and increased earnings 33 percent during the quarter to $2.7 billion.

Whatever it's doing seems to be working. Organic growth—which is all sales not credited to acquisitions—across the company was up 6 percent and Lafley expects them to be higher next quarter. "Next quarter is the first quarter that Gillette's numbers will be included in the organic results numbers," Lafley said. "Looking forward, we expect earnings per share growth to accelerate driven by strong base business results, the ramp-up of Gillette synergies and an improving cost environment."

Healthcare had the biggest percentage increase with sales rising 32 percent to $2.23 billion. This was led by the Vicks brand and the launch of Crest Pro Health toothpaste. Lafley said that while the company was "pretty pleased" with the success of Pro Health, it was too soon to tell if its double-digit growth was coming at the expense of competitor Colgate. "Crest has added share, but the competitor has kept market share, just as we expected," he said. "Their brand equity is strong and they are defending it competitively."

Lafley said that oral care—like all P&G brands—has benefited from the trend of U.S. consumers trading up in these categories. So even at a time when the public is overall more hesitant about the economy, they are still willing to pay more for better goods in most, if not all, of P&G's product areas. "We've just launched an awful lot of innovation in the marketplace," he said. And "our market share is up on 17 of our top 20 brands."

The next biggest gainer for P&G was beauty care with a net sales increase of 11 percent to $5.6 billion. Double-digit growth by Pantene, Head & Shoulders and Olay led to a 5 percent increase in organic sales in the category. In blades and razors, the company continues to benefit from its worldwide release of Fusion, which helped increase sales by 12 percent to $1.3 billion.

Fabric and Home Care net sales increased 9 percent during the quarter to $4.7 billion. Lafley credited the ongoing growth in the segment to new products like Tide Simple Pleasures, Gain Joyful Expressions, Febreze Noticeables, more gadgets for Swiffer, and the launch of Fairy dishwashing detergent in the U.K. and Italy.

The one laggard in the P&G portfolio was Baby and Family Care, which "only" increased net sales by 5 percent to $3 billion. While the company saw double-digit growth in these sectors in developing markets like China and central and Eastern Europe, in the U.S., Japan and Western Europe the growth of the Pampers Baby Stages of Development brand was offset by a slowdown of sales in the Luvs label.

Lafley said that although the company is projecting oil prices to be lower than they were last year, product prices will likely stay high through the next quarter. This is because suppliers are still working through the petroleum they had already purchased. In addition, he said no one yet knows how the public will respond over the long term to current economic and political unease. But he did expect economic statistics to be released this week "will tell us if the consumer is still in the game."