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Procter & Gamble (PG)
Procter & Gamble 4Q Profit Falls 18 pct; Sales Decline
This earnings season has shaped up to be a pretty decent one. A lot of companies have delivered results that have beat or at least met Wall Street's low expectations. Unfortunately, there have been a number of profit reports that are still showing major decreases in sales and revenue. There is no doubt that the recession has impacted multiples industries, but those driven by consumers are definitely having the hardest time. Procter & Gamble Co. is the latest company to deliver a quarterly loss. The world's largest household-products maker said fourth-quarter profit fell 18 percent. Why is the company continuing to have such a hard time? Is a turnaround for P&G right around the corner?
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| Stock Analysis |
The results from Procter & Gamble Co. were able to beat expectations, but a lot of underlying issues have been exposed. It was just last year that P&G was being praised for exceeding fourth-quarter expectations. At that time, the company started to feel the pressure from cash-strapped consumers that were trying to battle soaring energy costs. The same issues are still lingering, but have been elevated by record job losses and an unstable economy. Personal income has continued to dip over the last few months, so consumers are searching more than ever for bargains. This has forced people to cut back on purchasing certain household products. In the fourth quarter, P&G was hurt by weaker sales in its beauty and grooming businesses, which sells products like Braun shavers and Olay lotions. Generic brands continue to perform well as people opt to save a couple of dollars here and there. The economy is starting to rebound, but consumers are still not feeling the benefits just yet. This factor will continue to pose an issue for P&G over the coming months.
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The strengthening U.S. dollar against foreign currencies accounted for 4 percent of the sales decline. P&G tried to counteract this by raising prices across all product categories. That decision ushered in another issue for the Cincinnati-based maker of Pampers, Crest and Gillette razors. Raising prices during a recession is not the way to entice consumers to purchase more products. The increase in prices made global demand for these popular products decrease by 11 percent. Sales for the year dipped by 3 percent to $79 billion. Organic sales, which excludes acquisitions, divestitures and foreign exchange, rose 2 percent in the year.
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The future for P&G remains bleak. Since its business is so reliant on consumers, sales will most likely continue to decline. The company may take a different direction now that the nine year reign of A.G. Lafley has ended. The former CEO has been succeeded by Bob McDonald, but will stay on as Chairman. In a press release, Lafley called the quarter “one of the most difficult macroeconomic environments in decades.” He also added that the company has “made choices to focus on cash and cost discipline, maintain investments in long-term growth opportunities and to protect the structural economics of our businesses around the world.” Looking ahead, P&G confirmed its guidance for organic sales growth of 1 percent to 3 percent. The company reiterated its earnings per share guidance of $3.65 to $3.80. Shares of P&G, which have fallen 10.3 percent since the beginning of the year, fell 1.9 percent to $54.40 in premarket trading.
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Profile |
Click here to view a detailed profile of Procter & Gamble.
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