Procter & Gamble shift pays off

Focus on cost cuts, new products yields profit jump in quarter

Robert McDonald, chairman, president and chief executive officer of Procter & Gamble Co., shows a package of Tide Pods detergent during a speech in Chicago in September.
Robert McDonald, chairman, president and chief executive officer of Procter & Gamble Co., shows a package of Tide Pods detergent during a speech in Chicago in September.

— Procter & Gamble’s plan to cut costs and roll out new products is working.

The world’s largest consumer-goods company, whose products like Tide detergent and Gillette razors are in 98 percent of Americans’ households, reported that its fiscal second-quarter profit more than doubled as its new focus helped it gain market share.

Like many companies, Procter & Gamble has focused on expanding in emerging markets China and India to drive growth as more developed regions have slowed. But the company, based in Cincinnati, took for granted that it was a household name in some areas: It grew too fast and kept prices high. As a result, the company lost market share in more than half of its categories, while competitors gained ground.

But last year, Procter & Gamble began a huge restructuring plan that aimed to cut costs and focus on the company’s most profitable products and geographies. The company also lowered prices for laundry detergent, toothpaste and other products in the U.S., and cut jobs.

The company’s quarterly results show that the strategy is working. The company held or grew market share in businesses representing almost 50 percent of sales during the fiscal second quarter that ended in December.

The growth was driven in part by recent product introductions that include 3D White toothpaste in Brazil and the introduction of a low priced razor Gillette Guard in Egypt. In the U.S., Tide Pods drove the improvement in the detergent category and Cascade dish detergent, Gillette Fusion razors and Crest toothpaste were other strong sellers.

The company’s cost-cutting measures also are contributing to the improved results. The company said its plan to cut 10 percent of its non-manufacturing jobs, or 5,700, by the end of the fiscal year is 95 percent complete, about four or five months ahead of schedule. It also plans to cut 2 percent to 4 percent more jobs per year in fiscal 2014 to 2016.

“We have more work to do, but the underlying trends are improving,” said Chief Financial Officer John Moeller in a call with analysts. “We remain confident that our focus areas ... are the right ones, and should generate over time the kind of earnings progress that will put us among the best in our industry.”

During the second quarter that ended Dec. 31, Procter & Gamble earned $4.06 billion, or $1.39 per share, up from $1.69 billion, or 57 cents per share, in the same quarter last year. Excluding special items,it earned $1.22 per share. Revenue increased 2 percent to $22.18 billion. Analysts polled by FactSet expected earnings of $1.11 per share on $21.86 billion in revenue.

Based on the better-than expected results for the first half of the year, Procter & Gamble said it expects fiscal 2013 core earnings of $3.97 to $4.07 per share on revenue growth of 1 percent to 2 percent. It previously predicted an adjusted profit of $3.80 to $4 on flat revenue growth to up to 1 percent. Analysts expect earnings of $3.97 per share.

For the current quarter, the company projected core earnings of 91 cents to 97 cents per share on sales growth of 3 percent to 4 percent. Analysts expect a profit of 95 cents per share.

The results are welcome news for the company, which has heard complaints from unhappy investors about its lack of market-share growth, most notably from activist investor William Ackman, who disclosed a 1 percent stake in the company in July.

Procter & Gamble shares rose $2.83, or 4 percent, to close Friday at $73.25, a 52-week high.

“We like that P&G is making progress on this front, and we are optimistic that this trend of improvement will continue, especially given that many of P&G’s new product launches have just recently, or have yet to, hit the market,” Wendy Nicholson, an analyst at Citi Investment Research, wrote in a note.

Procter & Gamble’s results come after its competitor Unilever on Wednesday reported that its full-year net income rose 5 percent, helped by higher prices and cutting costs.

The Dutch company, which makes consumer products such as Dove soaps and Magnum ice cream, recently has been outperforming its larger rival.

Business, Pages 31 on 01/26/2013

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