BATAVIA, Ohio (AdAge.com) -- Procter & Gamble Co. boosted ad spending by $1 billion in the just-closed fiscal year, about $750 million of that in the fourth quarter alone, which helped the consumer-goods behemoth return to share and sales growth.
But investors weren't impressed, sending shares of the company down 4% in early trading as P&G reported earnings today. Or, perhaps they were more impressed by a 2-cent miss on analysts' consensus earnings per share projections (though P&G handily met its own earnings range) and 2 percentage-point decline in operating margin for the quarter ended June 30.
It was a steep price to pay for 4% organic sales growth, which rival Colgate-Palmolive Co. matched (if rounded up from 3.5%) despite cutting ad spending last quarter as it hiked promotion to defend against increasingly aggressive moves by P&G in overseas oral-care markets, and which Reckitt Benckiser beat with 5% growth despite a far-smaller uptick in ad spending and tougher year-ago comparisons.
P&G's 8% volume growth was much greater than sales, though. The company attributed the disparity mainly to growth of lower-priced products sold in developing markets rising 12% while volume growth in developed markets such as the U.S. and Western Europe came in at 5%.
P&G said it grew market share on brands and in countries representing 60% of its sales, up from 30% a year ago.
That $1 billion increase in ad spending should bring P&G back near the record $8.6 billion level it posted in fiscal 2009, just before a global financial crisis.
Chief Financial Officer Jon Moeller said P&G will maintain both ad and promotion outlays at roughly similar levels, adjusted for sales growth, this year. The company expects sales to rise 2% to 4% in the year ending June 30, 2011, with organic sales, excluding acquisition, divestiture and currency effects, up 4% to 6% and core earnings, also stripping out acquisition and divestiture effects, up 7% to 9%.
Just maintaining this year's ad and promotion spending levels could be ambitious, given that P&G faces commodity-price increases rather than the reductions it saw last year. And while P&G got financial latitude to spend more from a weakening dollar much of last year, it faces European rivals such as Unilever, L'Oreal and Henkel with added financial leeway to spend this year thanks to a weakened euro.
Driving much of the year-end spending spree for P&G were campaigns for Gillette Fusion ProGlide razors, the second restage of Pantene shampoo in the past three years and the launch of Pampers Dry Max. P&G gained 4 points of share in men's shaving and a half point in U.S. shampoo. Pampers, which had a slight downturn in share for the quarter in Symphony IRI data, rose 1.5 points in all channels in the quarter.
"Put simply, we would have been crazy to do anything else," Mr. Moeller said of the spending increase. "If you look at the strength of the innovation program that was coming to market, we literally took every resource available to us and put it behind those innovations."
Chairman-CEO Bob McDonald said P&G delivered a 20% increase in advertising impressions for the year on what appears to be a roughly 13% increase in reported spending. People shouldn't just focus on the quantity, but also on the quality, he said, citing a shift from TV to digital spending, P&G's Cannes Grand Prix and subsequent Twitter-fueled viral video blowout for Old Spice, a Winter Olympics effort the company estimates added $100 million in sales companywide, and co-production of family-friendly movies with Walmart.
Mr. McDonald also offered a surprisingly frank endorsement of leadership change in Walmart's U.S. division, which saw the reassignment of Vice Chairman Eduardo Castro-Wright to global sourcing and e-commerce duties, departure of Chief Merchandising Officer John Fleming last month along with appointment of Bill Simon as president-U.S. Walmart.
"I'm very excited about the changes at Walmart," Mr. McDonald said. "We see Walmart under the leadership of Bill Simon in the U.S. getting back to the traditional way that Walmart has grown their business. ... We know that Bill Simon has the complete trust ... of the Walton family and of the leadership of Walmart, and we see him doing things to make changes to things like Project Impact and the clean aisles to make sure that Walmart gets its top line growth going and attracts more shoppers."
Mr. McDonald added that P&G has a strong relationship with Walmart International Chief Doug McMillon and Brian Cornell, president of Sam's Club, who are also seen by many as candidates to ultimately succeed current CEO Mike Duke.