GILLETTE REPORTS 24% JUMP IN FOURTH QUARTER AD SPENDING

Earnings Fall Short of Analysts' Expectations

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CINCINNATI (AdAge.com) -- Boston-based Gillette Co. got a trim from investors today despite a 73% increase in fourth quarter net earnings from last year, as a sharp 24% increase in reported ad spending -- plus promotion and price cuts -- hurt quarterly operating profits.

Gillette, the category leader in batteries and shaving brands, reported fourth quarter net earnings of $346 million, or 33 cents a share, vs. $200 million or 19 cents a share in the year-ago period. Quarterly sales rose 4.6% to $2.53 billion, but most of the gain -- three points -- came from foreign currency effects.

The news drove Gillette's stock

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price down 2.9% to $29.24 in late afternoon trading. Analysts had expected more from Gillette: Earnings per share, excluding restructuring costs, were flat at 32 cents, 2 cents below analysts' estimates, as earnings gains came mainly from comparisons against a quarter with heavy restructuring costs last year.

Actual media spending?
Gillette's reported fourth-quarter ad spending rose a whopping 24% to about $190 million globally, but it's unclear how much of that represented actual increased media spending in the quarter vs. higher-than-reported increases earlier in the year. Gillette uses a sales-based estimation method to report ad spending in quarters one through three of its fiscal year and reconciles estimates with actual ad spending when it reports fourth-quarter numbers. For all of 2002, Gillette's global ad spending rose more than 12% to around $650 million compared with last year.

Fourth-quarter ad spending was up strongly behind increased spending on Duracell batteries and Oral-B toothcare lines, said Chris Jackubic, vice president of investor relations, in a conference call with analysts. Mr. Jackubic was vague, however, when questioned about marketing plans for 2003, saying ad spending "will be a function of conditions in the marketplace."

New challenges
Chairman-CEO Jim Kilts in a statement said he expects the entrance of battery rival Energizer into the razor category with Energizer's planned acquisition of Pfizer's Schick-Wilkinson Sword business to "present new challenges this year," but won't cause Gillette to change its objectives.

"Schick in the hands of Pfizer was a relatively small division," said Charles Cramb, Gillette's chief financial officer, on the call. "Now it will be a major part of the Energizer portfolio. ... They will have invested some $930 million dollars for it. So I think you have to have to expect that they will be fairly aggressive."

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