Procter & Gamble Co. is set to report earnings Wednesday under more pressure than usual for Earth's biggest marketing spender. For one thing, there's an activist investor in the house: Nelson Peltz and his Trian Partners. He's yet to drop the seemingly inevitable white paper telling P&G managers how to run and possibly break up their business.
On the plus side, P&G is on a roll of under-promising and over-delivering in recent quarters. It will be hard to keep that up, given relatively strong year-ago results in the fiscal third January-March quarter ("JFM" in P&G-speak) and hence a tougher comparison.
It will also be harder because global rival Unilever just reported first-quarter organic sales results above expectations – by around 3% -- despite flatish unit volume. Unilever disappointed the prior two quarters, and was thus, in the largely zero-sum game of slow-growing packaged goods, a market-share donor in P&G's turnaround story. Not so much last quarter, it seems.
Another key rival, Kimberly-Clark Corp., missed on revenue expectations with organic sales down 1% when it reported Monday, probably good news for P&G.
Rivals such as Johnson & Johnson's consumer business and RB (Reckitt Benckiser) already have reported lackluster results, the latter failing to grow organic sales for the first time in 15 years. Blame goes to retailers reducing inventories, late U.S. tax refunds and other consumer worries – even failure of RB's Scholls foot pedicure device in Europe, which is no skin off P&G one way or another. But Unilever, usually all gloom and doom about the economy, noted positive signs in global consumer spending.
P&G's results will help answer how bad things really are – if at all. Here's what else to anticipate:
Peltz's name probably won't be uttered
But his presence will loom large. January's earnings call was in retrospect a lecture on why P&G shouldn't break up and doesn't need free consulting. If P&G can beat expectations on the top line again, that will speak for itself.
P&G will be expected to show it can grow ...
And it will need to do so for reasons other than cutting costs and prices. Analysts have called for both things for years, but now that it's happening, such as with P&G's recent 12% reduction in average price on Gillette razors and blades, they also want more signs P&G can win in other ways. Expected details on a more aggressive product-launch program in the months ahead are welcome.
... But there will still be discussion of cost cutting
Unilever earlier this month quantified its ongoing marketing-services squeeze by promising to cut in half the number of agencies it works with and and decrease the number of ads by 30% -- things P&G already has done essentially. Further cuts of that scope are unlikely for P&G, but the company has promised to save big money, or at least get more bang for the buck, on what it spends in trade promotion with retailers. This is a more challenging trick than ever as retailers push harder for suppliers to cut prices or fork over more marketing dollars.
Media spending will keep rising
Or at least it will as a share of sales. This is something P&G pledged to do at the outset of the year, come what may in the economy, thanks in part to cuts in overhead costs.