P&G Profit Tops Estimates as McDonald Trims Costs

Procter & Gamble Co. Chief Executive Officer Bob McDonald
Chief Executive Officer Bob McDonald is working to introduce new products and reduce costs after cutting the company’s profit forecast three times in its previous fiscal year. Photographer: Daniel Acker/Bloomberg

Procter & Gamble Co., the world’s largest consumer-products maker, reported first-quarter profit that topped analysts’ estimates as it slowed market-share losses and reduced manufacturing costs.

Net income in the three months ended Sept. 30 slid 6.9 percent to $2.81 billion, or 96 cents a share, from $3.02 billion, or $1.03 a share, a year earlier, the Cincinnati-based company said today in a statement. Excluding some items, profit was $1.06 a share. The average of 18 analysts’ estimates compiled by Bloomberg was 96 cents.

Chief Executive Officer Bob McDonald is working to introduce new products to regain market share and reduce costs amid pressure from activist investor Bill Ackman. P&G said it held or gained market share in categories representing more than 45 percent of sales in the quarter, up from 30 percent in the fourth quarter.

“The positives will help management’s credibility, but the company will need to demonstrate further consistent execution before fully convincing skeptics,” Tim Conder, an analyst at Wells Fargo & Co. in St. Louis, said today in a note. He rates P&G market perform, the equivalent of a hold.

P&G today repeated its forecast that per-share profit excluding some items would be $3.80 to $4 in the current fiscal year. Analysts estimate $3.89, on average. Sales in the quarter fell 3.7 percent to $20.7 billion, about matching analysts’ average estimate.

P&G rose 2.9 percent to $70.07 at the close in New York. The shares have gained 5 percent this year.

Turnaround Plan

McDonald has come under fire from Ackman, who took a $1.8 billion stake in P&G in July and has pushed to replace him, a person familiar with the matter has said. The CEO has laid out a turnaround plan that includes $10 billion in cost cuts through 2016 and recapturing market share in key categories such as detergents.

“We’re focused on embedding the culture of productivity in the company,” McDonald said on a media call today. P&G is adding a global productivity officer to further that goal, he said.

P&G’s board in July said it unanimously supports McDonald and his plan after Bloomberg reported that some directors were dissatisfied with his performance and had discussed replacing him. The board said it would monitor the plan’s effectiveness.

McDonald is working to spur innovation after P&G’s creation of breakout products slowed. Once known for inventing new categories such as home tooth-whitening kits that could command premium prices, the maker of Pampers diapers and Crest toothpaste is centralizing some product development and focusing on categories such as beauty.

Promotions Spending

P&G plans to boost marketing to support a “very strong slate of innovation” later this year, Chief Financial Officer Jon Moeller said today on a conference call.

P&G raised its outlay for promotions in the quarter by 2.4 percent from the previous year, the only company in the industry to significantly increase such spending, Conder said before the results were released.

Warren Buffett, whose Berkshire Hathaway Inc., holds about a 2.2 percent stake in P&G, yesterday told CNBC that he doesn’t have solutions to improve the company’s profit.

“The earnings on Procter & Gamble have been disappointing now for a few years,” Buffett said.

Berkshire’s P&G holding declined 19 percent to 59.6 million shares in the second quarter, according to an August filing disclosing its U.S. stock portfolio.

Kimberly-Clark Profit

Kimberly-Clark Corp., the maker of Kleenex tissues and Huggies diapers, yesterday said third-quarter profit rose 20 percent to $517 million, or $1.30 a share, from $432 million, or $1.09, a year earlier. The Dallas-based company also raised its 2012 profit forecast for the second time this year, to as much as $5.25 a share.

Colgate-Palmolive Co. said today it will cut its global workforce by 6 percent, or about 2,300 jobs, in a four-year restructuring program.

The company’s third-quarter net income rose 1.7 percent to $654 million, or $1.36 a share, from $643 million, or $1.31, a year earlier, Colgate said. Excluding some items, profit was $1.38 a share, matching the average of analysts’ estimates compiled by Bloomberg.


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