Analysts mixed on P&G's prospects

28 May 2009

CINCINNATI: A range of reports have painted a mixed picture of Procter & Gamble's prospects of reversing the 5% decline in volume sales it posted during the last quarter, as the dual pressures of the economic downturn and the advance of value brands threaten its position.

The rise of value brands has been one of the defining features of the current financial crisis, and it has also been argued that more established properties that reduce their adspend risk losing out in such a climate.

Procter & Gamble has stated an ambition to double its global sales from $80 billion (€57.5bn; £50.0bn) to $175bn, with a focus on Africa, Eastern Europe and the Middle East, but did not offer guidance on its 2010 sales figures during the last reporting period.

AG Lafley, the company's chairman/ceo, will appear at the Sanford C. Bernstein Strategic Decisions Conference this week, and is expected to announce a range of new strategic measures.

Deutsche Bank analyst Bill Schmitz argues that "for the first time in a long time" Procter & Gamble is talking about "gaining volume and value share," as it realises that reversing a share loss now will be a "lot less expensive than trying to take it back later."

In order to do so, Consumer Edge Research predicts P&G will increase its worldwide adspend by around $750m next year, and could even boost its outlay by double that amount, having cut back by $440m in the last quarter.

Connie Maneaty, of BMO Capital Markets, also forecasts it will "aggressively confront" falling sales, possibly through cutting prices, having previously raised them despite the onset of the downturn.

Its other initiatives could include making its detergent offering Cheer into a "value brand" in order to compete with private label offerings.

She also suggested the company could launch a new "laundry additive" product as it seeks to "address the laundry habits of consumers who do not buy Tide," its main fabric care brand.

However, JP Morgan's John Faucher posited that the possible need to increase spending levels and restructure its operations means Procter & Gamble's performance is likely to be "neutral" from an investor's point of view.

Among his recommendations to the Cincinnati-based firm are to increase its outlay in Latin America, reduce the prices of its fabric care brands, and increase its promotional activity at Wal-Mart.

It could also "jettison slower-growth divisions," and "with lower expectations, divestitures of businesses like pharma, Pringles, batteries, and some paper products may be more feasible."

Data sourced from AdAge/CNBC/Cincinnati Enquirer; additional content by WARC staff