Negotiations are now largely complete, a spokesman said, but he declined to comment on the amount of the upfront pullback, which he said resulted from a variety of marketing decisions by P&G brands.
Despite announcing strong sales and earnings results last week, P&G said its global ad spending for the fiscal year ended June 30 was down as a percent of sales for the first time in four years, though still up in absolute terms from the prior year. It also comes as rivals Colgate-Palmolive and Unilever show sales and market-share increases as a result of sacrificing profit margins to boost spending (see story, P. 3). P&G Chairman-CEO A.G. Lafley cited increased use of marketing-mix modeling among its reasons for the spending shifts.
"We are using marketing ROI to identify which elements of our marketing mix are most effective," Mr. Lafley said. "On some businesses, we are taking the savings or some of the savings. On other businesses, we are reinvesting in the marketing activities that make more sense. "
The belt tightening in marketing spending comes despite a sales increase of 10% for the fiscal fourth quarter and year to $14.3 billion and $56.7 billion respectively. Earnings per share were up 12% to 56¢ for the quarter, beating analyst estimates by 2¢.
But while P&G's prices were up 2% for the fourth quarter, its gross margin still fell 1.1 percentage points as raw-material costs rose faster. While sales growth and cost cuts elsewhere helped minimize the impact, P&G would have had trouble making analyst estimates for the quarter and fiscal year had it had it spent on advertising at the same 10.7% of sales rate as last year.
Chief Financial Officer Clayton Daley said P&G's rate was about 10.4%-10.5% on the fiscal year. That represents a difference of $110 million to $170 million from the old rate. But P&G's ad spending should still total around $5.9 billion, up about 7% globally and ahead of most competitors absolutely and as a percent of sales. Mr. Daley said he expects margin pressure to ease by early next year as more P&G price hikes kick in and costs stabilize.