Q. I don’t understand why my shares of Procter & Gamble Co. aren’t doing better. Please fill me in.
A. This consumer-products giant recently launched its Folger’s “stomach-friendly” Simply Smooth coffee for those who suffer upset stomachs from drinking coffee. Thirty-five million Americans have cut back their coffee intake because of stomach discomfort, according to the company.
But the firm that digested Gillette Co. in a $57 billion acquisition last fall could use a little stomach soothing itself. Profits are squeezed as large retailers such as Wal-Mart Stores Inc. and Walgreen Co. reduce inventories to keep costs in line. Significant inventory reductions also are expected in developing markets with slowing economies.
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Procter & Gamble–the manufacturer of Tide, Crest, Pampers, Pantene, Pringles and Duracell–has faced price discounts, trade promotions and marketing spending from rivals that saved money from their restructuring programs, according to A.G. Lafley, its chairman and chief executive.
Shares of Procter & Gamble (PG) are down 5 percent this year, following gains of 5 percent last year and 10 percent in 2004. Despite a 37 percent increase in earnings in its recent quarter, the stock slipped because numbers weren’t as good as hoped.
James Kilts, the Gillette boss who helped negotiate the sale to P&G, is stepping down as head of the Gillette division. Until his retirement in October, he’ll work on integrating the merged firms and spend time with his replacement, Mark Leckie.
Kilts, who also helped engineer the 2000 sale of Nabisco to Philip Morris, could receive an estimated $165 million in severance and change-in-control benefits.
Looking at P&G’s positives, its Fusion razor had a successful launch this year and played a big role in increased quarterly sales. The addition of Gillette’s razor and blade business should give a long-term boost to operating margins.
Founded in 1837, P&G sells more than 300 brands globally. New products include Olay Definity to improve uneven skin tone and Crest Pro-Health toothpaste.
Consensus rating on P&G shares from analysts who track them is between “buy” and “hold,” according to Thomson Financial. That consists of four “strong buys,” six “buys” and nine “holds.”
Earnings are expected to increase 4 percent this year, in line with the cleaning products industry. Next year’s projected 16 percent rise compares to 5 percent forecast for peers. The five-year annualized growth rate is expected to be 11 percent versus 12 percent industrywide.
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Andrew Leckey is a Tribune Media Services columnist. E-mail him at [email protected].