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P&G Will Hike U.S. Marketing Spending After Last Year's Drop

Investors Unimpressed, But P&G Sees Continued Share and Sales Gains

By Published on . 1

Procter & Gamble Co. cut U.S. measured-media spending last year, but Chairman-CEO Bob McDonald said U.S. marketing spending will rise for the fiscal year ended June 30 as his company ramps up product rollouts this month following a quarter that met estimates but left investors unimpressed.

Bob McDonald
Bob McDonald

P&G today announced fiscal third-quarter organic sales and earnings per share that met and beat its targets respectively, but its stock was still down 5% in midday trading. P&G's fourth-quarter earnings estimate was below analyst consensus, and analysts expressed disappointment during P&G's earnings call both in organic sales that one said appeared "rounded up" to 3%.

P&G's results varied widely by segment, led by health care with 8% organic sales growth, helped by such things as a strong cold-flu season and Eastern European expansion for Vicks. But beauty organic sales fell 1%, a reversal from last quarter's a 3% gain.

Those results come after the recent release of Kantar Media data showing P&G cut U.S. measured media spending 5% last year to $2.8 billion as its chief global beauty competitor, L'Oreal, hiked spending 9% to $1.5 billion and personal-care marketers generally hiked spending 5% last year to $6.8 billion.

Asked on a call with reporters whether those data points explained the performance of the beauty business, Mr. McDonald said no, adding that U.S. marketing spending will be up this year overall and that it's rising this quarter in the wake of several marketing initiatives.

"What you may be looking at is a timing issue," he said. "Many of our initiatives are in the January- through-June semester, and thus wouldn't show up in much past data. But look at the media data in the April through June quarter."

Upcoming initiatives include Iams So Good – a more value-priced version of the superpremium pet-food brand, and Swiffer with Gain fragrance, in addition to the Olay Regenerist restage.

P&G has been under investor pressure, including from hedge-fund manager Bill Ackman, to improve performance amid sales growth slower than rivals in recent years.

But at least parts of P&G's targeted turnaround efforts -- focused on the top 40 category-country combinations -- appear to be working. For example, sales and shares are up in Gillette razors and blades for the past four and 12 weeks, according to Nielsen data from Deutsche Bank – despite heavy promotion at Walmart of the new Axe razor from rivals Energizer Holdings and Unilever.

Mr. McDonald also noted progress in P&G's U.S. hair-care – where the Nielsen data showed P&G shares basically flat the four weeks ended March 16. But Mr. McDonald said the new Pantene Expert Collection and the return of Vidal Sassoon as a U.S. mass value brand are exceeding expectations and helped P&G return to hair-care share growth for all of March.

Competitors appeared to get the jump on P&G with winter hair-care promotions, and Mr. McDonald pointed to heavy competitive discounting that included buy-one-get-one promotions and high-value coupons, though P&G's shares and sales improved over the course of the first quarter.

P&G continues losing share in skincare, however, something Mr. McDonald said a coming re-launch of Olay Regenerist will help address.

Overall, P&G gained or held share in businesses accounting for more than half its sales globally, two thirds of sales in the U.S. and 75% of sales in China in the quarter – all representing continued improvement from prior quarters, Mr. McDonald and Chief Financial Officer Jon Moeller said.

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