P&G promises more marketing… and cost cutting

New products on the way to build equity and gain competitive edge Thursday was a good day for Procter & Gamble, one of North America’s largest advertisers. For the first time in five years, its stock rose above $70 after beating its earnings forecast. Even so, P&G delivered a 2% organic sales growth rate that, […]

New products on the way to build equity and gain competitive edge

Thursday was a good day for Procter & Gamble, one of North America’s largest advertisers. For the first time in five years, its stock rose above $70 after beating its earnings forecast.

Even so, P&G delivered a 2% organic sales growth rate that, while at the top end of its forecast, trailed most competitors that have reported earnings for the most recent quarter, including Unilever, Colgate-Palmolive Co., Kimberly-Clark Corp. and Reckitt Benckiser. The earnings performance resulted from a combination of coming in at the high end of sales forecasts and lower-than-expected commodity costs, said chief financial officer Jon Moeller.

To address sagging market shares, P&G executives vowed an onslaught of new-product innovation and stepped-up advertising and “equity-building” spending starting in January and extending to the end of the fiscal year in June. The product launches will include a new midtier-price “boutique” line for Olay, whose growth last decade slowed then reversed in the U.S. amid ever pricier products and a complicated lineup of products and sub-brands.

P&G had good and bad news on the market-share front. It gained or held share across 60% of its business in the U.S. last quarter, but only 45% of its business globally – the difference being primarily from share losses in China, Moeller said.

Even in the U.S., share was “flat to slightly down,” Moeller said in a call with journalists, though it improved each month in the quarter. On a global basis, P&G should again be gaining market share “by the back half” of the fiscal year, or January through June, he said, thanks to a combination of recent price rollbacks and coming increases in innovation and marketing spending.

Another bright spot – Tide Pods, despite a launch delayed twice by manufacturing issues and helping fuel investor unrest – is on track to hit $500 million in first-year sales and is helping P&G gain share in laundry in the U.S., CEO Robert McDonald said.

P&G has been under fire from investors, including Pershing Square Capital Management’s Bill Ackman and many of its own restless alums, as its market shares have stagnated or fallen and its stock largely went sideways under McDonald, who became CEO in July 2009.

At the same time, P&G faces even more pressure to cut costs from a new front – the competition. Colgate, despite announcing 5% organic sales growth and earnings that beat analyst forecasts, announced a new four-year restructuring today that will cut 2,300 jobs or 6% of its work force globally. That came on the heels of K-C yesterday announcing a 1,300- to 1,500-job restructuring, highlighted by a decision to exit the diaper business in most of Europe in a surrender to P&G’s Pampers brand, which has long dominated the market.

All that appears to be stoking a race to the bottom of for headcounts in the industry, as McDonald on the earnings call said he is preparing to appoint a senior group president as chief productivity officer. That executive will “lead the next round” of productivity improvements in a full-time capacity, McDonald said.

This role will report to McDonald, supported by a “productivity council” of senior managers, all aimed at fostering what he called a “culture of productivity.”

That phrase, along with a focus on P&G’s time-tested business model, increasingly has replaced talk about “purpose” in McDonald’s communications in recent weeks. It’s a change certainly welcome to some analysts. “Now it’s almost raining cost cutting, which is good news,” Sanford C. Bernstein analyst Ali Dibadj on the P&G earnings call.

As it is, Moeller said P&G has identified 4,200 of the 5,700 marketing and other non-manufacturing “overhead” executives to exit the company by June under the current plan, with job losses coming disproportionately in Western Europe, according to people familiar with the matter.

“We’re making strong progress against our $10 billion [cost-cutting] plan and we will not stop there but we’ll not compromise growth in the process,” Mr. Moeller said.

P&G originally identified $ 1 billion in savings in marketing costs as part of the plan announced in February, though has since said it plans to use broader productivity savings in part to hike marketing spending. It’s unclear how much additional savings or job cuts will affect P&G’s marketing ranks, which number 7,000 globally across marketing, design, market research and PR.

This article originally appeared in Advertising Age.

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