P&G' solid quarter boosts company, CEO
By Jessica Wohl ,ReutersWhat a difference a year makes for Procter & Gamble Co. and CEO Bob McDonald.
January 27, 2013, 12:04 am TWN
Last February, he unveiled a US$10 billion restructuring including thousands of job cuts after the world's largest household products company admitted it was not nimble enough, especially in emerging markets.
In April, Wall Street analysts roasted McDonald on a conference call after P&G's latest profit warning and having to rescind some price increases. The dour performance prompted activist investor Bill Ackman to call for change last summer when he bought the shares.
Since then, McDonald has refocused the world's largest household products maker on winning back market share for products ranging from Gillette razors to Tide detergent.
On Friday, Procter & Gamble delivered its strongest indication yet that its turnaround efforts are paying off, posting a better-than-expected profit and improved forecasts, helped by U.S. hits such as Tide Pods and new hair care products under the Vidal Sassoon brand.
The results and rosy outlook — it was the first time the company raised its annual profit forecast since April 2010 — led to a 4-percent rise in P&G's stock price, setting a high for McDonald's 3-1/2 year tenure.
Even Ackman, who for months has blamed McDonald's team for earlier missteps, said on CNBC that the results were an indication of “very significant progress.”
Friday's report showed better-than-expected profit, helped in part by a gain from an acquisition, and sales that surpassed expectations, with growth in all divisions. Even so, some analysts think the company still has more to accomplish.
“The results are pretty good, but you know what? We know we're not done yet, we know this is work in progress, we know we have more to do,” McDonald said in an interview.
P&G's long-term goals, along with cutting costs and developing more innovative products, include getting sales to grow 1 to 2 percentage points ahead of the market pace.
“They've been stuck in the mud for years, and this is kind of a ray of hope for the company and they should be commended on the quarter,” said Channing Smith, co-manager of the Capital Advisors Growth Fund. P&G represents 2 percent of that fund and the firm overall holds roughly 75,000 shares of P&G.
It has taken P&G months to reignite growth in sluggish markets such as the United States while also expanding in emerging markets, where products are typically less expensive.
P&G expects Tide Pods, the single-dose detergent launched in the United States in 2012, to become a US$500 million brand this year. It says the premium-priced product is attracting both loyal Tide users and those who used to buy less expensive brands.
Tide Pods will be followed by an Ariel-branded version of the product in Europe this spring. Other launches this year include updated Pantene and Vidal Sassoon hair care products, as well as new versions of Bounty paper towels.
P&G earned US$4.06 billion, or US$1.39 per share, in the fiscal second quarter ended in December, up from US$1.69 billion, or 57 cents per share, a year earlier.
Stripping out unusual items such as restructuring charges and acquisitions, P&G earned US$1.22 per share. That topped the company's own forecast of US$1.07 to US$1.13 per share and analysts' average target of US$1.11, according to Thomson Reuters I/B/E/S.
Net sales rose 2 percent to US$22.18 billion, topping analysts' forecast of US$21.91 billion.
P&G expects fiscal 2013 core earnings of US$3.97 to US$4.07 per share, up from an earlier forecast of US$3.80 to US$4. Analyst estimates were at the bottom of that new range.
It expects organic sales to rise 3 to 4 percent this year, narrowing a prior forecast of 2- to 4-percent growth.