Procter & Gamble's Prilosec OTC business felt the heat of private-label competition during the firm's latest quarter, the first full period since the brand lost market exclusivity as an OTC proton pump inhibitor.

The weak performance of Prilosec OTC weighed on volume and sales growth of P&G's personal health segment as well as the overall health care division in the fourth quarter, the firm said Aug. 5.

"Volume in pharmaceuticals and personal health declined low-single digits as a double-digit decline in Prilosec OTC ... more than offset high-single digit growth on Actonel and the addition of the Swiss Precision Diagnostics joint venture," P&G said.

For the 13-week period ended June 30, Prilosec OTChad sales of $70.7 million in supermarkets, drugstores and mass merchandisers (excluding Wal-Mart), according to Information Resources Inc.

That figure represents a decline of 25.8 percent from the same period a year ago, IRI notes.

Prilosec OTC's total share of the antacid tablet market was around 27.1 percent, declining nearly 8 percent from the previous year, according to IRI.

The drug lost patent exclusivity in March with the entry of Perrigo's omeprazole, a private-label equivalent to Prilosec OTC (¹ 'The Tan Sheet' March 10, 2008, In Brief).

Perrigo recently stated it expected sales of its omeprazole product to grow in the economic slowdown as consumers switch to store brands with lower prices, a projection that may already be proving true.

According to IRI, total sales of private-label antacid tablets - which are not broken down by marketer - soared 62.7 percent for the 13 weeks to $56.4 million. The segment represents 21.6 percent of the antacid category, an increase of about 9 percent, IRI said.

Oral Care Bright Consumer Spot

Net sales for the health care division increased 7 percent to $3.6 billion during the April-June period, with favorable foreign exchange impacting sales by 6 percent. Net volume grew 3 percent, with the Prilosec OTC issue negatively impacting volume by 1 percent.

Oral care represented a bright spot in the health care business during the quarter, with shipments up on both Crest toothpaste and Oral B toothbrushes.

"Crest dentifrice maintained its all-outlet value share leadership in the U.S. despite intense competitive promotional activity," VP and Treasurer Jon Moeller said during a same-day earnings call.

"P&G's leading all-outlet value share of toothpaste in the U.S. remained at about 38 percent," Moeller added.

The health care division's earnings grew 15 percent to $526 million. For the year, the division's sales grew 9 percent to $14.58 billion, while earnings improved 12 percent to $2.51 billion.

P&G said despite its ongoing efforts to mitigate commodity costs through price increases, it expects commodity and energy spending to grow by $3 billion during its fiscal 2009.

In May, when the company announced it was raising prices across its portfolio, including health care, oral care and beauty care, it estimated its fiscal 2009 commodity costs would increase by $2 million (² Also see "P&G, Colgate Hike Prices To Offset Rising Commodity Costs" - Pink Sheet, 12 May, 2008., p. 7).

"We are looking at the largest increases in commodity and energy prices at least any of us who have been with the company 30-plus years now have seen," CEO A.G. Lafley said during the earnings call.

"So we are going to be taking pricing that is unprecedented, and we just want to make sure that we are prudent. We want to make sure that we are cautious and we are careful," Lafley said.

P&G's ability to offset commodity costs with higher prices and cost controls as well as tax benefits helped drive 33 percent net earnings growth to $3.02 billion in the quarter.

Net sales advanced 10 percent to $21.3 billion for the period, with organic sales, which exclude acquisitions, divestitures and foreign exchange, up 5 percent.

P&G's total fiscal 2008 revenues grew 9 percent (5 percent organically) to $83.5 billion, with net earnings advancing 17 percent to $12.1 billion.

- Eileen Francis (e.francis@elsevier.com)

Despite Prilosec OTC Weakness, P&G Grows With Price Hikes, Cost Cuts

More from Archive

More from Pink Sheet