Cuts in marketing spending and a light new-product schedule hit the top line of
Procter & Gamble Co., which missed its own and analysts' organic sales growth
forecasts with a 1% decline last quarter, lagging almost all its publicly traded
competitors who've reported so far.
But the marketing giant signalled a renewed focus on market share in the year
ahead, setting up what could be a bruising battle with competitors, nearly all
of which have signalled a desire to maintain or rekindle growth.
P&G still beat its earnings-per-share target by a penny at 80 cents on cost
cuts. Chairman A.G. Lafley said the focus last year was on cash
preservation and maintaining "investment grade" industry pricing structure
through increases to compensate for rising commodity costs and a strengthening
dollar.
Sales unadjusted for currency fell 11% to $18.7 billion, while net earnings fell
18% to $2.5 billion.
Things will be different, however, with the new fiscal year that began July 1,
executives said. Noting that P&G had tolerated some share losses in the
interest of shoring up prices last year, CEO Robert McDonald said that "isn't
something we will accept this year." He also indicated acquisitions in
higher-growth, higher-margin businesses, in addition to expansion into emerging
markets and supporting P&G's core businesses will be pillars of his long-term
growth strategy.
Mr. Lafley acknowledged that the just-concluded quarter was light on innovation,
the primary driver of marketing spending. And the company acknowledged it
had cut marketing spending - without making the claim, as it had in prior
quarters, that reductions in media costs were sufficient to still allow an
increase in consumer impressions.
Both those things will change with the new fiscal year, though possibly not by
much in the current quarter, when P&G projects organic sales - adjusted for
acquisition, divestiture and currency effects - to be flat to down 3%. For
the full fiscal year, P&G expects organic sales to rise 1% to 3%.
While Mr. Lafley said P&G had maintained value market share in most of its
categories, Chief Financial Officer Jon Moeller said organic sales growth in
P&G's categories was flat, compared with P&G's 1% decline.
While Mr. Lafley noted a host of beauty categories - including hair, skin care
and fragrance - in which P&G maintained or gained share globally, the 3% decline
in the organic sales of the P&G unit was worse than that for the beauty and
personal-care units of every competitor to report quarterly earnings so far,
including L'Oreal, Johnson & Johnson, Colgate-Palmolive Co., Henkel, Beiersdorf,
Alberto-Culver Co. and Energizer Holdings.
Mr. Lafley singled out the snacks, battery, blade and razor and North American
oral-care businesses as ones where share results were disappointing.
P&G is getting help on two fronts that will allow it to hike spending on
marketing, Mr. Moeller said. Those include commodity costs, projected to
be about $1 billion less companywide this year, as well as relief from the
effects of a stronger dollar. Foreign exchange is now expected to reduce
P&G's net sales by zero to 1% next year, vs. prior projections of 2% to 3%.
P&G's increase in brand support next year will be evenly spread among increased
marketing support for existing brands and products, stepped-up new-product
launches and reducing competitive price gaps, Mr. Moeller said.
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