Friday, December 13, 2002

P&G cuts restructuring time

Company plans to branch out to accelerate growth

By Cliff Peale
The Cincinnati Enquirer

NEW YORK - Procter & Gamble Co. took a year less than expected to complete its 1999 restructuring program.

P&G's top executives told Wall Street investors Thursday that they would end the "Organization 2005" restructuring - and the special charges to profit that accompanied it - by June 30. Instead, the company will pay up to $200 million in annual restructuring charges from normal operations.

Before its meeting with Wall Street analysts and investors in New York, Procter & Gamble Co. displayed some of its newer products and ventures. They include:

Swiffer Duster, a hand-held cleaner using the technology of the popular Swiffer floor cleaner. Developed by a Japanese company, the product will hit U.S. shelves in January.

A Tide product that automatically mixes the detergent and a pretreater. The idea is in test market in Midland, Texas, and Grand Junction, Colo.

A computer being used in some North American stores operated by the European retail giant Koninklijke Ahold NV, based in the Netherlands. Using the computer, an employee can test a consumer's hair, predict how the hair would be helped by using P&G's Pantene and provide samples - all in about two minutes.

That means P&G will use its big brands such as Tide and Pampers to boost sales, while venturing more into middle-income markets it once might have avoided, chairman and chief executive A.G. Lafley told several hundred Wall Street types in a midtown office building.

It also means that the relentless search for costs and efficiencies will never end.

"This is how we will accelerate our top-line growth without adding cost," said Bob McDonald, P&G's president of global fabric and home care and one of several P&G business leaders who spoke at the event.

Analysts attending the meeting seemed impressed. They noted that P&G continues to generate cash and find wise uses for it - whether paying dividends or pouring marketing dollars into growing health care and beauty care brands.

"It was music to my ears," said Ann Gillin, an analyst at Lehman Bros.

Investors weren't swayed, as P&G's stock barely moved Thursday, up 24 cents to $87.70.

Wednesday night, Procter had increased its profit-growth estimates for the quarter that ends Dec. 30. It's become standard practice for Mr. Lafley's P&G, setting modest expectations and then exceeding them.

P&G had promised investors that it would lay out a growth strategy that would enable the company to meet its goals - 4 percent to 6 percent sales growth and double-digit profit growth - after the restructuring savings start to diminish.

They did not disappoint. Mr. Lafley said the company would continue to generate increased sales of brands such as Olay and Crest. He also said P&G would:

Look for partnerships with any company, even a competitor, including one recently announced example with Clorox.

Extend its efforts in developing markets, where consumers make smaller, more frequent trips to stores and where global brands often trail local competitors.

Continue to drive cost savings in areas such as purchasing and inventory.

That will include outsourcing noncore functions, Mr. Lafley said. He made clear that although P&G has decided not to outsource most of its back-office functions to a single provider, it would move ahead aggressively with outsourcing some of its information technology and employee services functions.

Move into more mid-priced markets, following models such as its Gain detergent business in the United States.

"We're not interested in competing head-up against generics and private labels," Mr. Lafley said. "Not our game. ... But we're going to move out from our core. And we're going to do it in ways so we create value. We're not rushing into it."

Thursday was the latest attempt by Mr. Lafley to convince investors that Procter can sustain the robust sales and earnings growth of the past year. His rescue job has helped burnish P&G's stock price, which, despite a recent dip, has floated between $85 and $90 a share for most of the last year.

He has promised sales growth of up to 6 percent a year and profit growth topping 10 percent a year. While prepared to hear growth plans from P&G's top executives, most Wall Street analysts were expecting caution from Mr. Lafley.

"In this space, there's a bigger risk that if they try to stretch beyond that, they'll miss," Ms. Gillin of Lehman Brothers said.

P&G has turned to health care and beauty care brands to furnish most of that growth. Some, including the Actonel osteoporosis drug and Olay skin-care products, are growing at significantly higher rates than P&G's average. And the Clairol hair-color products that P&G paid $4.95 billion for in late 2001 are growing faster than shampoo and other hair-care brands.

Those brands also have lower costs for plants.

The presentation was Mr. Lafley's third in New York since taking over the chief executive's mantle in June 2000. While he has guided investors' expectations every quarter, the Wall Street trips have been carefully scripted to present the company's growth prospects.

In anticipation of the speech, several investment houses raised their ratings and price targets on P&G shares. Bill Steele of Banc of America Securities set a $100 price target and now encourages his clients to buy P&G stock.

"We project that the company can continue posting mid-single-digit top line and low-double-digit bottom line growth through fiscal 2004 - no small feat for a company with revenue in excess of $40 billion," he wrote.


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