P&G Cuts Marketing But Tries to Maintain Media Amid Currency Hit

CFO Outlines Where $570 Million in Spending Trims Have Come

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Jon Moeller
Jon Moeller

A strong dollar took its toll on Procter & Gamble Co. sales and earnings, and it's also among factors pushing down marketing spending. Chief Financial Officer Jon Moeller said marketing spending was down 0.7 percentage points as a share of sales last quarter.

Thanks to a dollar that strengthened against virtually every currency last quarter, P&G missed analyst forecasts for earnings per share excluding restructuring and other temporary factors by a fairly wide margin – at $1.06 per share vs. the $1.13 consensus analyst forecast. That came despite the 0.7 percentage point in marketing savings vs. last year and vs. fiscal 2012, of which 0.6 points came from non-media costs, Mr. Moeller said.

Based on the numbers Mr. Moeller cited, P&G's reported advertising spending for the full year ending June 30 would tally 10.5% of company sales, down from 11.2% in 2012 and 11.1% last year. With P&G sales currently running at around $81 billion on an annual basis, that would mean $8.5 billion in reported global advertising spending for P&G this year, down from $9.2 billion on $83.6 billion last year, before the effect of divestitures such as the Iams and Duracell brands.

Despite the currency issues, "our plan is full steam ahead as far as the basic media program," Mr. Moeller said on a call with reporters Tuesday. The cuts, which come mainly from non-media costs, are part of a long-term effort P&G announced in 2012. Then, the company announced a plan to squeeze $1 billion out of marketing costs in five years, and the recent numbers suggest the company is more than halfway there.

Between divestitures, currency efffects and cost cutting, P&G's reported ad spending appears on track to be the lowest since 2010 and the lowest as a share of sales since the recession-wracked fiscal 2009.

The cost-cutting numbers Mr. Moeller cited amount to around $570 million in marketing spending this year, of which $490 million would come from non-media costs, including production, logistics and agency fees. Mr. Moeller has previously talked about reducing the number of commercials and number of spokespeople P&G uses among the efficiency steps.

Speaking on the company's earnings conference call Tuesday, Mr. Moeller said marketing cuts haven't hurt effectiveness in part because of the company's move to more cost-efficient digital spending, which now accounts for more than 30% of P&G media spending globally. He added that three P&G brand videos ranked in the top 10 for YouTube views globally last year.

"These efficiencies are enabling us to maintain strong media weights despite the cost pressure we are facing from foreign exchange," he said.

P&G's organic sales, excluding currency and divestiture effects, rose 2% last quarter, roughly in line with global rival Unilever, which also missed analyst expectations primarily on weakness in developing markets. As has often been the case in recent years, P&G's beauty business was the laggard, with organic sales down 1%.

David Taylor
David Taylor

Last week P&G announced Group President David Taylor added beauty to his existing health and family-care duties, and Group President Patrice Louvet succeeded Deb Henretta directly over the beauty business. Ms. Henretta moved to a new role overseeing global e-business.

"David brings a new set of eyes, which can only help," Mr. Moeller said today, noting that he'd worked with Mr. Taylor in China in the 1990s.

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