P&G to Cut 1,600 Jobs, Bank on Digital for Long-term Savings
Facing flat market shares and growing investor pressure to cut costs, Procter & Gamble Co.plans to eliminate about 1,600 "overhead" or nonmanufacturing jobs, including some in marketing, and is banking on digital marketing to help contain media spending long-term, executives said on the company's earnings conference call today.
The move follows an announcement earlier this month that P&G would outsource to brokerage firms in-store merchandising work covering about 2,700 employees, most of the part-time, and expands a program put in place for some categories two years ago.
It's unclear how many of the merchandisers will move to the firms taking over the work or how many of the 1,600 cuts will involve involuntary separations. That reduction affects about 3% of P&G's nonmanufacturing workforce of about 50,000.
Chief Financial Officer Jon Moeller said P&G would rely on a combination of attrition, "selective hiring" and restructuring to get to the reductions, which will result in $240 million in annual savings -- in line with what P&G typically generates through annual restructuring spending.
Though efforts to reduce nonmanufacturing costs will extend beyond this fiscal year, P&G didn't take a special charge to cover the program, Mr. Moeller said, suggesting that it would be within the range of the company's usual restructuring efforts. P&G doesn't typically specify the number of headcount reductions each year, and its overall employment has grown despite prior restructurings, to 129,000 now.
Chairman-CEO Bob McDonald said he expects P&G's advertising costs to moderate as it moves more spending into digital media, where the sheer number of options and availability of largely free distribution drives down expenses. In the short term, however, heavy spending on the 2012 U.S. elections is likely to put upward pressure on P&G's TV costs, he said.
"In the digital space, with things like Facebook and Google and others, we find that return on investment of the advertising when properly designed, when the big idea is there, can be much more efficient," Mr. McDonald said. He cited the 1.8 billion in free impressions generated by the Old Spice campaign in recent years, adding "there are many other examples I can cite from all over the world."
P&G still expects to spend between 9% and 11% of sales on advertising in the long term and is stepping up spending this quarter and next behind its global Olympics sponsorship-related efforts, which he said the company expects to add $500 million in incremental revenues.
P&G beat analyst forecasts last quarter for core earnings per share by 2 cents, excluding special items. It was $1.10 on 4% organic sales growth, which was in line with forecasts. But P&G pulled down earnings guidance for the balance of the fiscal year because of the impact of a stronger dollar.
But Mr. McDonald said market share globally was about flat -- less than the the company's desired gain of sales growing 1% to 2% ahead of its categories. He blamed price increases, fueled by commodity costs, that P&G has led for the most part but that competitors appear likely to follow in the coming months. P&G is rolling back one price hike from last summer on Cascade in the U.S. after Reckitt Benckiser didn't follow on its Finish auto dish brand and is looking at similar actions in a handful of markets.