P&G to keep budget level as it aims to build sales

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Procter & Gamble Co. plans to hold ad spending steady as a percentage of sales for the fiscal year started July 1.

The package-goods giant also will freeze budgets for its "market development organizations," which handle trade promotion, multicultural marketing and some consumer promotions. P&G's "global business units," which are expected to hold ad spending steady at about 9% to 10% of sales, handle the bulk of the company's brand advertising.

The budget plans come as P&G looks for ways to boost sales and profits in the wake of a series of downward revisions and earnings surprises that have depressed the stock and led to the June departure of Chairman-CEO Durk Jager.

New CEO A.G. Lafley told analysts he will step up marketing and product development for P&G's 10 top global brands, each of which accounts for at least $1 billion in sales and together rake in nearly half P&G's $40 billion in revenue.

"In addition to driving today's billion-dollar brands, we need to create the billion-dollar brands of the future," Mr. Lafley said.


P&G grew sales of Iams by about $200 million by expanding it from specialty pet stores to supermarkets and mass-merchandisers, he said. That gives Iams, which now has estimated total sales of $800 million, the potential to become another billion-dollar brand.

Product upgrades and line extensions of such young brands as Febreze and Swiffer also will be a priority under Mr. Lafley. New brands will remain a priority, although not as high on the list as they were last year. Mr. Lafley projected new brands will add 1% to P&G's sales this year, compared to 2% last year.

While the big brands -- a list that includes Bounty, Charmin, Crest, Pampers and Tide -- will get added muscle, the majority of the 400 brands in P&G's portfolio will bring up the rear at budget time.

The renewed emphasis on core brands should be good news for D'Arcy Masius Benton & Bowles, which handles six of the 10 brands in at least part of the world. But because P&G is changing from media commissions to sales-based compensation, its media spending shifts won't directly impact agencies.

Overall, P&G projects sales to rise 4% to 6% next year, not counting foreign currency effects. That's down from the rosier 6% to 8% projections set for last year. P&G's actual sales increased 2% to $40 billion for the year ended June 30. (Sales without the impact of foreign currency rose 5%.)


But even the 4% to 6% sales projection is far from guaranteed. P&G projects volume to rise in the low single digits. The remaining growth would come from consumers trading up to higher-price premium products and via price increases that P&G has announced for such categories as laundry detergent and paper products.

While competitors appear to be following P&G price increases in paper, it's not clear whether archrival Unilever will follow P&G's lead in laundry detergent, said William Steele, analyst with Banc of America Securities. He expects P&G sales growth will hit the low end of the projection, about 4%.

"I like the strategy," Mr. Steele said. "A.G. Lafley certainly has the company pointed in the right direction. We're just being somewhat cautious here over the near term."

Despite the focus on core brands, Mr. Lafley said P&G will not step up the pace of divestitures; that would appear to rule out a dramatic move, such as sale of P&G's food business.

Mr. Lafley also outlined P&G's latest organizational change, a merger of the global beauty care unit he formerly ran with the global healthcare unit headed by Bruce Byrnes, now president-global health and beauty care.

P&G's interactive ventures unit and its corporate new ventures unit now report directly to Mr. Lafley.

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