P&G Cuts Forecasts as Sales Growth Slows in Europe, U.S.
Procter & Gamble Co. (PG), the world’s largest consumer-goods company, declined after cutting its earnings and revenue forecasts for the second time in less than two months, hurt by slowing sales growth in Europe and the U.S.
Fiscal fourth-quarter organic sales, which exclude acquisitions, divestitures and foreign-currency fluctuations, will rise as much as 3 percent, compared with a prior projection of a maximum of 5 percent, Chief Executive Officer Bob McDonald said today. Earnings per share excluding some items will be as much as 79 cents, down from a previous forecast of a maximum of 85 cents. That trails the 84-cent average of 22 estimates compiled by Bloomberg.
The reduced forecasts illustrate the difficulties faced by consumer-products makers as rising unemployment in Europe and North America restricts spending. Danone (BN), the world’s biggest yogurt maker, cut its profitability forecast yesterday. Europe is “difficult for everybody,” Jean-Marc Huet, chief financial officer of Unilever, said at the Paris conference yesterday. Unilever and Danone shares fell for a second day today.
The economic situation in Europe “is still very fragile,” Richard Caines, an analyst at Mintel International in London, said in a phone interview. “The fact that they’re talking about it means it will affect every company in those markets.”
Today’s reduction is “primarily driven by slower than anticipated top-line growth from slower than expected market growth rates and market share softness in developed regions, and negative impacts from foreign-exchange rate changes,” Cincinnati-based P&G said in a statement.
The maker of Gillette razors also forecast growth of 2 percent to 4 percent in fiscal 2013 organic sales. Core earnings per share, which excludes discontinued operations and incremental restructuring charges, will rise as much as a mid- single digit percentage next year, P&G said in the statement.
In February, McDonald announced a program of $10 billion in cost cuts and savings through 2016. “Good progress” has been made in the first three months of the process, he said today.
“Where we’ve struggled is with operating profit,” McDonald said. “We are making some progress in the back half of this fiscal year, but it’s less progress than we’d expected and that we want. It’s something we must fix.”
P&G is working to boost sales in developed countries including the U.S. and said today it needs to balance developing and emerging-market growth.
“We need to keep growing in our home market,” McDonald said, even as developing economies represent a larger portion of sales. Developing markets will represent 37 percent of revenue this year compared with 20 percent in 2000.
The company will focus on promoting and driving growth in its top 40 best-performing businesses -- mostly based in China, Brazil and Russia -- top 20 innovations and top 10 developing markets, according to McDonald.
P&G will focus on more competitive pricing after its products became relatively more expensive in some markets as it increased prices sooner than competitors, McDonald said.
“P&G has put their prices up to protect their margins, but it’s still a squeeze on profits when you have commodity costs going up and shoppers being more careful about how much they spend,” Mintel’s Caines said.
Since taking over in July 2009, McDonald has focused on adding new categories and countries toward a goal of reaching 5 billion customers by 2015. The maker of Pampers diapers has seen patience wane among investors and analysts as the company’s share price has underperformed peers such as Kimberly-Clark Corp. (KMB) and Colgate-Palmolive Co. (CL) in the past three years.
The CEO said today that the company will concentrate on developing bigger products with more potential than smaller ones. It has cut the volume of innovations by 33 percent even as it rolls out new products including the Febreze Car vent clip air freshener and Crest Glamorous White toothpaste.
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