June 20, 2012 / 11:37 AM / 7 years ago

P&G cuts forecast, will focus on big businesses

CHICAGO/LONDON (Reuters) - Procter & Gamble Co took the blame on Wednesday for a lack of big new products and not being quick enough to cut costs as it deals with persistent slowing demand in Western Europe, the United States and China.

The Procter and Gamble trademark is seen hanging outside the New York Stock Exchange in New York May 7, 2010. REUTERS/Shannon Stapleton

The world’s largest household-products maker cut its growth forecasts for a second time in two months on Wednesday, as expected, and said it did not expect to repurchase shares in the coming fiscal year as it tries to maintain its “AA-“ credit rating.

P&G’s comments come a day after shipping company FedEx Corp warned about slowing global economic growth, and foodmaker Danone SA said its profits would be hit as Spanish consumers switched to cheaper yogurt.

The U.S. maker of products such as Tide laundry detergent and Gillette razors said it would focus on its 40 biggest businesses, 20 biggest new products and 10 most important developing markets in a bid to shore up profits.

P&G’s shares fell 3.2 percent to $60.20 in afternoon trading on the New York Stock Exchange. Shares of several P&G rivals with global exposure, including Unilever and Colgate-Palmolive, also fell.

While analysts said the company seemed to be taking the right steps to spur operating profit growth, which has stagnated during Chief Executive Bob McDonald’s three years at the helm, there was concern the plans would take some time to bear fruit.

“The company’s margin of error seems narrow ... cementing P&G as another (consumer packaged goods) ‘show-me’ story over the next 12 months,” said Sanford Bernstein analyst Ali Dibadj.

He suggested during an interview that McDonald’s job could be at stake if there was another earnings disappointment next year.

“If there is another lowering of the bar, I’m not sure if this management team has a lot of longevity,” he said.

P&G has frustrated investors with its inability to increase operating profit in recent years. Sales have been hurt by slowing global economies and the strong dollar, and higher commodity costs have eroded earnings.

But Chief Executive McDonald focused some of the blame on the company, which has also raised prices too much on some products.

“It’s our job to overcome these (external factors), but we haven’t always been able to do this, in part because we haven’t been hitting on all cylinders internally,” he said.

One disappointing area has been in the lack of innovation from a company that used to develop whole new categories, such as the Swiffer floor mop in 1999 and the Whitestrips tooth whitening product in 2001.

“We haven’t created a new category or a meaningful new brand in some time,” McDonald said.

To solve this, the company is reducing the number of products in development, focusing on the biggest 20, he said.

The company also plans to focus on its 40 biggest businesses, which represent about half of sales and 70 percent of profit, and its 10 most important developing markets, including Brazil, China and Russia.

“The company seemed much more aware of their recent shortcomings and determined to fix them,” J.P. Morgan analyst John Faucher said in a note to clients.


McDonald cut his underlying sales forecast for P&G’s April-to-June fourth quarter to growth of 2 percent to 3 percent, down from 4 percent to 5 percent, while the core quarterly earnings target was trimmed to 75 to 79 cents per share, from 79 to 85 cents.

He said growth in developed markets, making up 60 percent of sales, had dropped off significantly, while in emerging markets, P&G suffered mandated price cuts in Venezuela and import curbs in Argentina.

McDonald said it would take time to reverse the negative trends, and he expected little improvement in fiscal 2013, which begins July 1. He forecast underlying sales growth of 2 percent to 4 percent as the group begins to recover its overall market share.

He also forecast 2013 core earnings would be flat to up by a mid single-digit percentage. Stripping out foreign exchange, core earnings per share would show growth of a mid-to-high single-digit percentage.

P&G is currently undergoing a restructuring plan to cut 5,700 non-manufacturing jobs and $10 billion of costs by the end of 2015/16.

Editing by Bernadette Baum and Maureen Bavdek

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