Friday, February 19th, 2010
Profit Outlook Curbed; CEO McDonald Says Growth Strategies ‘Starting to Work’
By ELLEN BYRON And ANJALI CORDEIRO
BOCA RATON, Fla.—Procter & Gamble Co. said it expects stronger sales in coming months as it launches a flurry of new products—from India to Brazil to the U.S.—but it acknowledged its profits won’t grow as quickly over the long term as previously thought.
The world’s biggest consumer-products maker is betting on innovation to lure recession-weary shoppers with a wider range of prices and new features. The emphasis on its new products comes as P&G tries to reassure investors that it can once again post sizable gains in sales despite a big deceleration during the recession.
“We have much work left to do but we’re encouraged by early signs that our growth strategies are starting to work,” P&G Chief Executive Robert McDonald told investors at a conference Thursday.
Many investors have fretted that P&G may have lost the ability to cater to cost-conscious shoppers. Some analysts had feared P&G would have to lower its long-term sales-growth targets to contend with weakened consumer spending.
As it happened, P&G executives didn’t reiterate their long-term target for sales growth, and they lowered their long-term forecast for growth in earnings per share. The company now expects per-share earnings to grow in a range of “high single to low double digits”; P&G’s previous long-term target, maintained since 2001, has been double-digit gains.
“We think this lack of detail adds some ambiguity and is somewhat frustrating,” J.P. Morgan analyst John Faucher wrote in a research report, noting P&G’s size and increased competitive activity will challenge its ability to increase sales at the high end of its long-term target.
Executives gave no indication of additional price cuts to those announced last month, but cautioned that they may choose to “prioritize” revenue growth over profit margins for now.
Still, Mr. McDonald expressed confidence in P&G’s ability to increase its organic sales, a closely watched metric that excludes acquisitions, divestitures and currency effects. The company announced that “organic sales growth has returned,” and expects increases through the remainder of its fiscal year ending June 30.
“We are going to grow, and we are going to be [at] the top of our peer group,” Mr. McDonald said. The chief executive touted the pipeline of newproducts P&G will roll out over the coming months, saying there will be 30% more launches in the company’s main product categories and key countries than in the year before, and the most in his 30-year career at the company.
Hair-care brand Pantene plans a “reinvention,” Mr. McDonald said, including new formulations, packaging and marketing that will launch in June. Oral-care introductions include new Crest whitening products and a new Crest Pro-Health Sensitive line of toothbrushes, floss and toothpaste. Other new products will help expand P&G’s range of prices. The company will sell a new premium detergent in Japan called Sarasa, a bargain-priced detergent called Tide Naturals in India and a midprice line of Ace detergent in Colombia.
This week, other major consumer-product makers boasted of upcoming new and improved products. Colgate-Palmolive Inc. and Clorox Co. on Thursday touted new toothpastes. On Wednesday, Church & Dwight Co. said it was in the midst of one of the most robust new-product rollouts in its history, including new Arm & Hammer detergents, OxiClean stain fighters and Nair hair remover. Still, these launches come with expectations of a difficult year ahead.
“2010 is going to be uglier than hell,” Church & Dwight Co. CEO Jim Craigie said on Wednesday. “I don’t see the economy coming back at all.” Though consumer-product makers long have succeeded in persuading shoppers to spend more by introducing new, enhanced goods, this time may be different, some analysts warn. Despite some signs of improving consumer sentiment, “consumers are clearly indicating that they are nonetheless still in a very frugal mindset, looking to reduce debt, save more, and continuing to manage their budget extremely cautiously,” according to a January report by research firm Consumer Edge Research LLC.
