Procter & Gamble profit falls short in 4th qtr on record ad spending, sales up

By Dan Sewell, AP
Tuesday, August 3, 2010

P&G 4Q profit falls short after big ad spend

CINCINNATI — Procter & Gamble Co. is betting that heavy advertising will draw budget-conscious households to new products, even those with higher prices, as it tries to build sales and market share in a tough economy.

The consumer products maker reported Tuesday that net income fell 12 percent in its fourth quarter, largely because of company-record spending on marketing. Revenue rose 5 percent, and the company expects continued growth over the next year.

Smaller rival Clorox Co. also said more spending on promotions, and tough competition, took a bite out of fourth-quarter results. The maker of its namesake bleach and Glad trash bags said net income was nearly flat, even though revenue was up 1 percent.

With weaker results than Wall Street expected, P&G stock fell 3.4 percent, or $2.12, to close at $59.94. Clorox, its results in line with analysts’ forecasts, was off 23 cents to $64.47.

P&G, which reported sales growth across its broad portfolio and geographic regions, has also boosted volume with price cuts, promotional discounts and cheaper versions of big-name brands to combat tradedown in a time of continued high unemployment. Meanwhile, its courting with ads those who can afford new Gillette razors, Crest teeth whiteners, Pampers diapers and Pantene shampoo.

“We have got to appeal to all consumers,” Bob McDonald, president, CEO and chairman, said, adding that the company expects an uneven U.S. economic recovery. “I think we are seeing that already. We don’t expect a double-dip recession, like you don’t, but we have got to keep innovating and keep growing at all areas of our vertical portfolio.”

Already the world’s biggest advertiser, P&G hiked ad spending by more than $1 billion in the past year, to $8.6 billion, which company officials said was its highest total yet.

Much of that went to promote recent innovations of some of its biggest brands, such as the June debut of Gillette Fusion ProGlide. It went to market at a suggested price of $10.99 for a handle and shaving head, 10 percent more than the previous Fusion, and P&G officials said Tuesday it became the market leader within two weeks.

“Put simply, we would have been crazy to do anything else,” Jon Moeller, P&G’s chief financial officer, said of the heavy ad spending. “If you look at the strength of the innovation program that was coming to market, we literally took every resource available to us and put it behind those innovations because we believed so strongly in them.”

Jack Russo, an analyst for Edward Jones, said while some investors wanted to see better profit numbers, he still considers P&G stock a “buy.”

“You can argue that they’re being too aggressive,” he said. “I don’t have a problem with what they’re doing. Again, you draw a line in the sand and say ‘We’re not going to lose market share.’ “

Among other bright spots was Ace laundry detergent, a brand sold mainly in Latin America that the company said has become its 23rd brand to hit $1 billion in annual sales. The company also reported more sales and improved market share for Old Spice body washes behind its popular marketing campaign.

Sales laggards included Oral-B power toothbrushes, Duracell batteries, Downy fabric softener and high-end salon products.

P&G said it earned $2.2 billion, or 71 cents per share, down from nearly $2.5 billion, or 80 cents a share, a year prior. Revenue increased to $18.9 billion.

Analysts expected 73 cents a share on $19.1 billion in revenue.

Organic sales, a key measure that excludes currency fluctuations, acquisitions and other such changes, grew 4 percent for the quarter and 3 percent for the year. P&G totaled $78.9 billion in sales for its fiscal year, up 3 percent.

P&G expects more sales growth in the coming year, projecting organic sales up 4 to 6 percent with net sales up 2-4 percent. The company expects earnings in a range of $3.91 to $4.01 per share.

Clorox expects to earn $4.50 to $4.65 per share for fiscal 2011; with sales growth of 2 percent to 4 percent.

AP Retail Writer Emily Fredrix in New York contributed to this report.

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