P&G Recession Proff? No Soap

You might not think anybody would use a smaller dollop of shampoo because of the economic slump. Or tear off fewer paper towels. But that's what's happening in some households. Consumers have also cut what they keep in the pantry. And retailers have trimmed inventories. As a result, recession has caught up with a manufacturer Wall Street often thinks is recession-proof: Procter & Gamble Co.

And recession is only part of it. An onslaught of new competition in the U. S. market has also conspired to bring P&G's domestic growth to a standstill and to shrink profit margins. While business abroad remains strong, Wall Street analysts have been busy slashing earnings estimates. So when P&G announces results for its third fiscal quarter on Apr. 24, most expect the giant marketer will earn just pennies more than the $1.14 a share it made a year ago.

Since P&G added $7 billion in sales and doubled its profits from operations between fiscal 1987 and 1990, the slowdown raises a question: Can Chairman Edwin L. Artzt, who took over just as P&G hit its stride, maintain that impressive record? "I'd be a damned fool to make any bold predictions," says Artzt. But he clearly hopes that the trouble will be temporary, and he is moving aggressively to try to make it so. P&G has even put out a Ten Commandments of how to manage in a recession.

Something of the sort plainly is needed. Last quarter, P&G estimates, cuts in retail inventories alone nicked U. S. sales by 2%. At the same time, consumers have been paying closer attention to how big a blob of toothpaste they use, so such sales have been flat. And although they're being choosy about which products to economize on, consumers are also trading down to cheaper store brands for such items as cooking oil and fabric softener. Hence, one of Procter's Ten Commandments: Minimize the price spread between your brand and private labels. In fact, says Artzt, P&G will manage to keep overall U. S. prices flat in the fiscal year ending June 30.

That's possible because the company has been busy hatcheting costs. During the year, P&G's cost of making and delivering its domestic products will rise a scant 1%. Much of this comes from plant consolidations Procter began several years ago. Little question remains, however, that Artzt is taking a tourniquet to costs in general. "There is a squeeze on, you bet," he says. One result: Early retirement programs are keeping overhead costs down.

The profit consciousness has won applause on Wall Street, but it also has drawn some critics. "He's much more short-term than most P&G CEOs," says one. Artzt sees no reason P&G, a true long-term thinker among major U. S. corporations, can't remain so and continue to produce steady earnings gains. A recession, he says, "tends to squeeze the fat out of organizations. Sometimes that causes some hollering, but so be it."

COFFEE WAR. Although next fiscal year's budgets are coming in for close scrutiny, Artzt so far hasn't decreed any across-the-board slash in ad spending. "This is the worst possible time to go flat in your marketing," he says. Indeed, P&G is engaged in some pitched battles to defend its position. Its Folgers coffee faces a rejuvenated Maxwell House. Lever Brothers Co. is making inroads in the bar-soap business. And rivals have been raising new challenges in everything from toilet tissue to deodorant. "Categories with 50% of their domestic product volume are under attack," says analyst Saul H. Ludwig of Roulston & Co., a Cleveland investment firm.

Altogether, Artzt discloses, P&G's U. S. media spendingwhich runs in the $1 billion rangewill be up 6% this fiscal year. And P&G continues to roll out a bevy of new products, such as its line of superconcentrated detergents. Artzt says he has encouraged managers to speed up product initiatives. Now, he has to hope consumers aren't quite so stingy measuring out his products.

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