Competitors' Gloom Could Be P&G's Boom: What to Expect From Big Advertiser's Earnings

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Credit: Courtesy Procter & Gamble/Business Wire

Procter & Gamble Co. reports fiscal fourth-quarter earnings Thursday under a huge cloud of industry gloom and a fight by Trian Partners' Nelson Peltz for a board seat. The world's biggest advertiser badly needs a strong showing in its final quarter before an October shareholder vote.

Yet, with the exception of Unilever, key competitors have reported awful results. Kimberly-Clark Corp., Johnson & Johnson (Consumer) and RB (Reckitt Benckiser) all reported organic sales declines and Colgate-Palmolive Co. was flat. Even their unit volumes were down. RB blamed the global hacker attack in late June for carving two percentage points off global sales for the quarter. Other players have had no better explanation for why people are scrimping on things like toilet paper and toothpaste in places that aren't even having recessions.

So what does all that mean for what we can expect from P&G's final fiscal-year report on Thursday?

A good chance of an upside surprise
With so many competitors reporting puzzlingly bad results, there's a decent chance gains by P&G are their common problem. The other alternative is an uptick in private label, with definite signs of this in Nielsen scanner data, and retailers using it as a weapon in a bruising price war of their own.

Any upside surprise will come from e-commerce and developing markets
Scanner data isn't P&G's friend either, since analysts have reported sluggish sales and share losses for the company in brick-and-mortar stores. But e-commerce sales, not easily tracked by anyone, have been accelerating in household and personal-care categories such as baby care, where has gotten particularly aggressive. Outsized gains by P&G in e-commerce would help deliver a surprise. P&G may also have been able to reverse recent trends by outperforming rivals outside the U.S.

The focus will be on speed
When Peltz began a proxy challenge for a board seat after months of talks with P&G, he accused P&G of having a "stifling bureaucracy." Almost instantly, P&G moved its year-end reporting date up a week, largely to prove it could as a simpler more streamlined company after shedding 100 brands. Any additional evidence P&G is moving faster these days would fit the communications plan.

Marketing, or at least media spending, should increase
Look for P&G to deliver a promised spending increase for the quarter, and possibly commit to higher media spending on the year, despite continued cuts in agency and production costs. Peltz made clear he's not looking to cut P&G's marketing or product development budgets. And after years of a stronger dollar pressuring P&G's top line, a weakening dollar of late opens room to grow profits while spending more on marketing.

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