Wednesday, January 26, 2000

P&G profits up, stock down

2nd-quarter profits grow 11%

The Cincinnati Enquirer

        Procter & Gamble's earnings were up 11 percent in the second quarter, but the company's stock price remained depressed in the wake of merger talks with two big drug makers.

        Some analysts said uncertainty among shareholders about P&G's next move in the acquisitions arena helped push the company's share price down $5.371/2, to close Tuesday at $97.50.

        P&G ended its merger talks Monday with Warner-Lambert Co. and American Home Products Corp. after its stock price dropped more than 19 percent on investor concerns about a proposed three-way combination, which would have cost about $140 billion.

        The stock rebounded Tuesday to a high of $103.683/4. But the stock was still down about 12 percent from just over $117 last Wednesday, when news of the merger talks surfaced.

        Although P&G says no deal is in the works with Warner-Lambert and American Home, the packaged-goods giant said it will continue to pursue mergers and did not rule out the possibility of bidding on a drug company.

        “I think (P&G's failed merger talks) indicates that the company, from an internal point of view, is operating at an efficient level such that they feel they can assimilate new businesses of substantial size,” said William Steele, managing director of Banc of America Securities.

        Meanwhile, the Cincinnati maker of Tide, Crest and Pampers is moving closer to meeting its goals under its Organization 2005 restructuring, designed to streamline operations and accelerate growth by increasing innovation and speed to market.

        The program, which will eliminate 15,000 jobs and up to 10 plants worldwide, aims to increase long-term sales growth by as much as 8 percent annually and boost profits by 13 percent to 15 percent over the next five years.

        P&G said sales of new products helped push second-quarter profits to $1.26 billion, or 88 cents a share — vs. $1.14 billion and 78 cents a share from a year earlier — and in line with analysts' expectations.

        Improving economic conditions in Asia also helped raise earnings.

        Sales in the second quarter rose about 7 percent to $10.59 billion from $9.93 billion — the largest quarterly sales gain since 1997.

        P&G Chairman and Chief Executive Durk Jager credited Organization 2005's speed-to-market initiatives and greater strategic focus for the improved results.

        “Organization 2005 is allowing us to continually innovate and bring new-to-the-world products to market faster, as evidenced by our accelerating momentum in sales growth,” he said.

        Analysts generally share Mr. Jager's positive outlook.

        P&G “has several very nice quarters ahead,” said Mr. Steele, who ranks the stock a “buy.” “New products are helping. Acquisitions are helping. Their strategies in gaining market share appear to have paid off.”

        Still, the company expects to experience a setback in the upcoming quarter because of the cost of marketing its new products.

        P&G executives told analysts during a conference call Tuesday that earnings were expected to increase 7 percent to 9 percent in the third quarter, less than analysts' expectations of about a 12 percent gain.

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