Procter & Gamble cost squeeze will keep fueling more marketing spending, incoming CEO says

Procter & Gamble Co. kept alive its pattern of beating Wall Street top line expectations last quarter as it squeezed marketing costs. But instead of pocketing the savings, the packaged goods giant plans to plow the money back into advertising, just in a more efficient manner, executives said on an earnings call today. Despite profit pressure from rising supply chain costs, incoming CEO Jon Moeller appears to believe the world’s biggest marketing spender can keep this up. Speaking on the call, Moeller said cost savings from advanced analytics and shifting money to digital media actually makes increased marketing spending more likely, not less in the future. Moeller made the statement after an analyst query about whether P&G could keep up its now well-established practice of squeezing marketing costs and then plowing the savings back into marketing. “We’ll continue to drive efficiency,” said P&G Chief Financial Officer Andre Schulten, who succeeded Moeller as CFO last year. “As we bring more media spend into our optimized targeting tools, as we increase the percentage of digital media around the world, as we continue to optimize our own algorithms to target messaging to consumers, there continues to be significant opportunity.” Schulten then predicted “a combination of reinvestment in marketing programs and flowing those productivity effects into” the profit and loss statement to offset cost pressures. “It’ll vary quarter by quarter depending on the situation,” he said. That would seem to open the door for P&G to tap future marketing cost savings to manage margin pressure. But Moeller, who succeeds David Taylor as CEO next month, then stepped in to make the case for plowing money back into marketing. “It might seem kind of an odd dynamic,” Moeller said, “but the more efficient and effective we can make our marketing spend be — and as Andre indicated just now there's lots of opportunities that you can do that — the more attractive it becomes to make those investments. So, in a maybe somewhat of an odd way, efficiency breeds effectiveness. Effectiveness breeds spending, and that all drives the market.” Moeller, a longtime finance executive who only took on general management roles within the past few years, will be the first P&G CEO in decades to have never been a brand manager. But his statement provides some rhetorical support for continued strong brand spending at the world’s biggest marketing spender, which had a $11.5 billion outlay for its just-completed fiscal year, according to the Ad Age Datacenter. For last quarter, P&G reported savings of about 0.8 percentage points of sales on overhead and marketing efficiencies, offset by 0.9 points of increased marketing investment. That adds up to a net of about $20 million more in marketing spending, a blip within a quarter with $20.3 billion in net sales. But it also means P&G increased marketing spending faster than its 5% increase in sales for the quarter, despite a massive $800 million hit from increased commodity and transportation costs. P&G is launching a new round of price increases on products that include razors, toothpaste and shampoo, and expects a growing portion of sales increase for the balance of its fiscal year ending June 30 to come from higher prices to offset those costs, Schulten said.

Procter & Gamble cost squeeze will keep fueling more marketing spending, incoming CEO says

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