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For consumer-product giants, it's always preferable that the biggest problems crop up in the smallest areas of business. On that count, P&G is lucky.

"P&G may still have problems, but it's like Mel Gibson," said one financial analyst. "Even if he has two acne pimples, they are still on Mel Gibson."

P&G's most challenging businesses-cosmetics and healthcare-together account for just about 10% of its $35.2 billion in sales. The marketer's largest businesses-beauty care; laundry and cleaning; and paper, with about a combined 75% of sales-are also its healthiest.

The food and beverages unit, which generates 12% of sales, remains tricky with the controversy surrounding Olean fat substitute. But P&G is said to be certain of the product's eventual success, so sure it's building product capacity-albeit with assistance from licensing partner Frito-Lay.

But that unit's position has improved markedly since the 1980s, when it struggled greatly. Now the business is yielding a high return on assets and newly global brands in the form of Pringles. Pringles is in more than 40 countries, making it P&G's No. 1 export brand.

Here's a report on each unit:


P&G's flagship category produced a leading 35% return on assets while continuing sales growth at a modest 4% pace in the fiscal year ended June 30. The flagship Tide brand has its highest U.S. market share-36.7%-since 1952, and is on its way to becoming the leading brand in China and Russia too.


Despite tougher competition from the newly merged Kimberly-Clark Corp. and Scott Paper Co., the paper sector led the company with 9.7% sales growth, the highest sales gain of any P&G sector. Also, earnings were up 11% despite price cuts; aggressive marketing responses to K-C and James River Corp. toilet tissue initiatives; and investments in diaper upgrades.

Industry analysts declare that P&G's U.S. diaper business has largely recovered. The company edged K-C for share in the $3.6 billion market, with a 38.9% share compared to K-C's 38.3% for year-to-date through June. It also gained a psychological edge recently by forcing K-C to respond to its latest initiative of "breathable" diapers.


Loaded with mature brands in North America, the category had sales growth of only 2% worldwide. But thanks to cost-cutting efforts, food and beverage delivers a 28% return on assets, second only to laundry and cleaning. P&G also reports that 90% of these brands increased volume in fiscal 1996.

Meanwhile, Pringles is becoming increasingly global, with market tests and factory construction under way in continental Europe. And P&G appears poised to renew its attack on the soft-drink category with Sunny Delight, its refrigerated juice drink that is being tested in soft-drink packaging.

Beverage industry consultant Tom Pirko, president of Bevmark, predicted the brand will become part of a growing segment of non-carbonated, alternative beverages priced at parity with conventional soft drinks.


Sales were up 6% and earnings ahead an impressive 33% worldwide, with continued global penetration by such haircare brands as Pantene Pro-V, Pert (also known as Wash-&-Go and Rejoice) and Head & Shoulders. But declining shares in cosmetics concern analysts-and P&G brass.

"One could argue that cosmetics is not really a P&G business," said one former top P&G advertising executive. P&G is "pretty good at products that have a tangible benefit, but not quite so good at selling dreams and aspirations."

An executive familiar with President Durk Jager's plans said the company will launch tests of new Cover Girl and Max Factor products within nine months, and "revisit" its investment in the category if the new products don't provide a significant lift to each brand, both of which are under share and sales pressure from competitors.

Another big question mark is Oil of Olay cosmetics, still in test in Germany and Evansville, Ind.


Replacing food as P&G's Achilles' heel, healthcare sales fell 2% last year and earnings were down 33% after subtracting the one-time gain from the surprise sale of the Aleve and Femstat 3 brands to partner Roche Holding.

Meanwhile, category flagship Crest toothpaste has been losing share since 1992.

"When Crest gets sick, healthcare gets sick," said a former brand manager at the company.

On the upside, Food & Drug Administration approval of P&G's Helidac Therapy ulcer remedy should add $100 million in sales, said Salomon Bros. analyst Carol Warner.

But that still doesn't pay for P&G's $250 million Cincinnati research and development facility. At 8% and fading, healthcare is a long way from the 15% to 20% of sales that Chairman-CEO John Pepper last year predicted the sector would reach by 2005.

"Cosmetics was [former Chairman-CEO] Ed Artzt's Vietnam," said PaineWebber analyst Andrew Shore. "Healthcare will be John Pepper's."

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