P&G Hits Targets Despite Share Losses in North America; Says Consumers Accepting Price Hikes
Consumers are largely going along with Procter & Gamble Co.'s price increases, even if competitors aren't all doing so yet, Chairman-CEO Bob McDonald said in a media conference call following issuance of the company's fiscal first-quarter earnings results this morning.
P&G's market share was "about flat" globally last quarter, which Mr. McDonald said he was happy with considering the results came amid price hikes mostly led by P&G and lagged by competitors. P&G lost market share in slower-growing markets of North America and Western Europe while holding or gaining share elsewhere, he said.
"Usually when you take pricing, you suffer massive share losses," Mr. McDonald said. "Because we don't signal pricing to competition, which is illegal and unethical, it takes competitors about a month or two to recognize you are pricing and about a month or two to decide to execute their price increase and then another six months to actually execute their price increase."
So to be flat on market share "when you're taking massive pricing around the world, and to deliver results consistent with the top end of your guidance, we're happy with that ."
P&G plans additional price hikes early next calendar year to recoup commodity costs and currency changes, but is about two-thirds of the way through price increases, he said.
Overall, P&G posted results in-line with analyst expectations, with organic sales up 4% to $21.9 billion and fully diluted net earnings per share up 1% to $1.03, as commodity costs continued to eat into margins despite price increases.
P&G took the biggest pricing-related hit to volume in fabric and home care, which saw a 1% decline in volume globally and "mid single-digit" declines in developed markets on a 5% price increase. Not all competitors are following along, with Mr. McDonald citing Church & Dwight Co. having yet to match P&G on price hikes in powdered detergent and Reckitt Benckiser not having followed P&G's price hikes for Cascade dish detergent in the U.S. yet. Unilever has also stepped up price promotion in U.K. hair care and laundry detergent, Mr. McDonald said.
P&G stuck by its earnings projections and plans to stick with plans to increase marketing spending largely in line with sales this year, said Chief Financial Officer Jon Moeller on the company's earnings call.
"I don't really see a dramatic change in consumer behavior," Mr. McDonald said, compared to what consumers have been doing since 2008. Unemployed consumers continue to look for good value and sometimes trade down, he said. "But at the same time you've got people at the higher end of the economic pyramid doing extremely well and continuing to trade up.
"Innovation is the antidote to any kind of economic malaise," Mr. McDonald said. "In places where we innovate, we continue to grow market share from all levels of consumer income."
Volume and sales progressed throughout last quarter, with September representing a record sales month for P&G, Mr. Moeller said on the investor call. That suggests no weakening in consumer spending despite declines in U.S. consumer confidence that started in August.
P&G began offering voluntary separation packages to retirement-eligible employees globally earlier this week as part of an accelerated restructuring effort, though that 's not accelerating nearly as much as some investors would like.
Mr. Moeller said P&G normally spends about $250 million to $500 million on restructuring and plans to announce in December a broader restructuring linked to the spin-off of Pringles to Diamond Foods, which he said would be "on the order of magnitude" of the $300 million restructuring in 2008 related to a similar spin-off of Folgers. That's likely to add up to $1 billion or less, as opposed to the $4 billion restructuring favored by most investors in a Sanford C. Bernstein survey published last week.
"While we appreciate the work the investment analysts do to cover our company, they obviously don't know the company as well as we do, nor have they ever run a company," Mr. McDonald said. "I think if you took the top end of that one analyst's analysis, that would cause us to have to separate about 50% or so of our non-factory employees, and that probably would not be a good idea."