Top Companies Report

1. Procter & Gamble

June 28, 2012

Cincinnati, OH
Sales: $68.7 billion (estimated for personal care, oral care and household care products).
Corporate sales: $82.6 billion. Net income: $11.7 billion, for the year ended June 30, 2011.

Key Personnel: Bob McDonald, chairman, president and chief executive officer; Werner Geissler, vice chairman, global operations; Dimitri Panayotopoulos, vice chairman global business units; Bruce Brown, chief technology officer; Giovanni Ciserani, group president, global fabric care; Linda W. Clement-Holmes, chief diversity officer and senior vice president, global business services; Joanne Crewes, president, global prestige; Virginia C. Drosos, group president, global beauty, skin, cosmetics and personal care, P&G; Philip J. Duncan, global design officer; Thomas M. Finn, president, global health care; Robert L. Fregolie Jr., global customer business development officer; John P. Goodwin, president, global Braun, beauty and grooming; Melanie L. Healey, group president, North America and global hyper, super, mass channel; Deborah A. Henretta, group president, Asia and global specialty channel; Colleen E. Jay, president, global retail hair care and color,; Joan M. Lewis, global consumer and market knowledge officer; Patrice Louvet, president, global grooming and shave care; Adil Mehboob-Khan, president, P&G Salon Professional, Global Wella Professional; Jorge S. Mesquita, group president, new business creation and innovation, global snacks and pet care; Jon R. Moeller, chief financial officer; Moheet Nagrath, global human resources officer; Filippo Passerini, group president, global business services and chief information officer; Kirk L. Perry, president, global family care; Laurent L. Phillippe, group president, CEEMEA and global high frequency store channel; Charles E. Pierce, group president, global oral care; Marc S. Pritchard, global brand building officer; Martin Riant, group president, global baby care; Jeffrey K. Schomburger, president, global Walmart team; Yannis Skoufalos, global product supply officer; Shannan Stevenson, president, greater China; David S. Taylor, group president, global home care; Jorge A. Uribe, group president, Latin America and global club, cash and carry channel.

Major Products: Beauty & Grooming: AP/Deo—Gillette, Old Spice and Secret; Bodywash & Soap—Camay, Gillette, Ivory, Olay, Old Spice and Safeguard; Colognes—Old Spice; Cosmetics—Cover Girl, Dolce & Gabbana, Max Factor; Hair Care—Aussie, Fekkai, Gillette, Head & Shoulders, Herbal Essences; Nioxin, Pantene, Pert, Rejoice, Sebastian, Vidal Sassoon and Wella; Hair Color—Clairol Professional, Fekkai, Natural Instincts, Nice ‘n Easy, Wella; Oral Care—Crest, Oral-B, Scope; Prestige Fragrances—Anna Sui, Christina Aguilera, Dolce & Gabbana, Dunhill, Escada, Gucci, Hugo Boss, Lacoste, Naomi Campbell, Puma; Shaving—Braun, Fusion, Gillette, Mach3, Prestobarba/Blue, Venus; Skin Care—Braun, DDF, Gillette, Olay, Prestobarba/Blue, SK-II. Household: Air Freshener—Febreze; Dishwashing—Ariel, Cascade, Dawn, Joy; Cleaners—Bounty, Comet, Mr. Clean, Swiffer; Laundry—Ace, Bold, Bounce, Cheer, Downy, Dreft, Era, Febreze, Gain and Tide.

New Products: Beauty & Grooming—Gillette Venus & Olay Razor, Oral-B Pro Expert; DDF Skin Evaluation System, Crest & Oral-B Pro-Health Clinical, SK-II Men Facial Treatment Essence, Crest Glamorous White, Head & Shoulders Fresh & Clean, Gillette Fusion ProGlide Styler, Gillette Fusion ProGlide & ProGlide Power, Olay Professional Pro-X Clear, Olay Hair Removal Duo. Household—Febreze Car Vent Clip, Cascade Complete Pacs, Ultra Dawn, Ariel with Micro Boosters, Tide Pods, Downy Unstopables, Ariel Touch of Lenor Fresh, Ultra Era.

Comments: Where in the world is P&G? Just about everywhere it would seem, but the company sent mixed messages to investors in May when CFO Jon Moeller told analysts that the company might have been expanding a bit too fast, particularly as it faces high commodity costs and an uncertain economy. Moeller said P&G now plans on stabilizing growth in its top 40 country-category combinations, which are disproportionately in North America and China. (In all, P&G has about 1,000 country-category combinations.) Then P&G will focus on expanding in its 10 largest emerging markets.

Olay Regenerist Micro-Sculpting Cream in a fragrance free formula.
That strategy would seem to fly in the face of P&G’s pledge to grow “by touching and improving more consumers’ lives in more parts of the world...more completely.”

But the fact is, high costs and issues like supply chain shortages, coupled with costs related to expanding, have led to disappointing results and shrinking market share for P&G, which lowered its fiscal-year guidance in April.

“In retrospect we may have overextended ourselves a bit with the pace of our portfolio and geographic expansions,” Moeller said. “Had we anticipated the commodity cost increases and markets contractions in developed markets that we ultimately experienced, we might have chosen a slightly slower pace.”

That said, Moeller insisted the company has no plans to pull out of any category-country combination and will maintain its growth in emerging markets.

“In terms of level of activity, it’s just being a little bit more deliberate and ensuring we have sufficiency before we push the button for the next expansion,” Moeller said.

Things got even dicier last month, when the company lowered its estimates for Q4 and fiscal 2013. For the April–June quarter, organic sales growth is now expected to be in the range of 2-3%, compared to a prior range of 4-5%. Net sales are expected to be in the range of -1-2% compared to a prior range of an increase of 1-2%. The revisions to the fourth quarter outlook are primarily driven by slower than anticipated top-line growth from slower than expected market growth rates and market share softness in developed regions and negative impacts from foreign exchange rate changes.

Looking ahead to fiscal 2013, P&G expects organic sales growth of 2-4%.

A Tough Earnings Environment
For the nine months ended March 31, 2012, P&G’s sales rose 5% to more than $60.5 billion, but net income fell 23% to $7.1 billion. Beauty sales rose 4% to $15.5 billion with a 7% decline in earnings to $2 billion. Grooming sales rose 4% to $6.3 billion and earnings rose 2% to $1.4 billion. Fabric and home care sales rose 4% to $20.7 billion, but earnings fell 10% to $2.2 billion.

On June 1, P&G completed the sales of its Pringles business to Kellogg in a nearly $2.7 billion all-cash deal. With completion of the sale, the Pringles workforce will transfer to Kellogg.

The Olympics open in London this month, and few US companies are more involved in The Games than P&G. Once again, Procter is sponsoring the US Olympic Team and is honoring all the moms around the world who work behind the scenes to make sure that their sons and daughters can perform at their peak level.

Fiscal 2011 Results
For the year ended June 30, 2011, P&G’s corporate sales rose 5% to $82.6 billion on a 4% gain in organic sales and a 6% increase in unit volume. Net earnings fell 7% to $11.8 billion. Developing markets accounted for 35% of sales, up from 34% in 2010 and 33% in 2009. All geographic regions contributed to volume growth, led by double-digit growth in Asia, high single-digit growth in Latin America and mid-single-digit growth in CEEMEA and Western Europe. All six of the business segments contributed to volume growth with high single-digit growth in the Baby Care and Family Care and Fabric Care and Home Care segments, mid-single-digit growth in the Beauty and Health Care segments, and a low single-digit growth in the Grooming and Snacks and Pet Care segments.
More specifically, beauty net sales increased 3% to $20.2 billion on unit volume growth of 4%. Organic sales also grew 3%. Mix negatively impacted net sales by 2% behind disproportionate growth in developing regions, which have lower-than-segment-average selling prices, and declines in the premium-priced Prestige Products and Salon Professional categories. Favorable foreign exchange positively impacted net sales growth by 1%. Volume in developing regions increased double digits, while volume in developed regions declined low single digits.

Volume in Retail Hair Care grew mid-single digits behind growth in all regions except North America. Developing regions grew double digits behind initiative activity on Pantene, Head & Shoulders and Rejoice, distribution expansions and market growth, which were partially offset by a mid-single-digit decline in North America due to competitive activity. Global market share of the hair care category was up slightly. Volume in Female Beauty was up low single digits primarily due to higher shipments of Olay, Venus and Safeguard behind initiative activity, and distribution expansion and market growth in developing markets. Volume in Salon Professional was down high single digits mainly due to the planned exit of non-strategic businesses and market size contractions in developed regions. Volume in Prestige Products declined low single digits primarily due to the divestiture of minor brands and lower shipments in Western Europe.

Grooming net sales increased 5% to $8.0 billion on volume growth of 3%. Organic sales were up 5%. Price increases, taken primarily across blades and razors in Latin America and developed regions, contributed 2% to net sales growth. Volume grew high single digits in developing regions and decreased low single digits in developed regions. Volume in Male Grooming was up low single digits due to higher shipments of blades and razors, mainly in developing regions driven by market growth, and deodorants in North America, partially offset by reduced volume in blades and razors in the developed regions. Gillette Fusion shipments increased double digits behind the continued expansion and success of Fusion ProGlide, while Mach3 shipments increased low single digits due to growth in developing regions, partially offset by decreases in developed markets.

Volume in oral care grew mid-single digits behind initiative activity and incremental merchandising support of Crest and Oral-B. Global market share of the oral care category was up over half a point.
Fabric care and home care net sales increased 4% to $24.8 billion on a 7% increase in unit volume. Organic sales were up 3%. Organic volume, which excludes the impact of the Ambi Pur acquisition, increased 5%. Mix negatively impacted net sales growth by 2% due to disproportionate growth of mid-tier product lines and powdered laundry detergents, which have lower than segment average selling prices. Unfavorable foreign exchange reduced net sales by 1%. Volume in developing regions was up high single digits, while volume in developed regions grew mid-single digits. Fabric Care volume increased mid-single digits, led by high single-digit growth in developing regions behind initiative activity, increased distribution and market growth. Global market share of the fabric care category increased slightly.

Home Care volume increased double digits due, in part, to the Ambi Pur acquisition. Organic volume in home care was up high single digits driven mainly by initiative activity, including launches of Gain hand dishwashing liquid and Febreze Set & Refresh in North America, and geographic expansion of dish and air care product lines.

Effective February 2011, P&G consolidated the three global business units (GBUs) into two: Beauty & Grooming and Household Care. As a result, the Health Care segment largely became part of P&G’s Beauty and Grooming GBU, while the Snacks and Pet Care segment became part of P&G’s Household Care GBU.

Pods: The Good & Bad

• P&G may be scaling back its push into emerging markets, but the company is going full speed ahead with its aggressive campaign for Tide Pods, the all-in-one detergent, stain remover and brightener that makes it easy to do the laundry quickly and correctly. Although the Pods are priced at a premium, a 14-pod package retails for $4.47 at Walmart online, P&G execs are confident that the segment will eventually become a $300 million segment within the $4.3 billion US laundry market.

But first, P&G and other single-use detergent makers must deal with some bad publicity. In May, reports came out that at least 250 young children were accidently ingesting the bright, colorful packs manufactured by P&G and other detergent makers.

P&G reacted quickly by redesigning the Tide Pods container and working with the American Cleaning Institute to warn parents to keep pods, as well as all household cleaning products, away from children.

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