Gillette CEO Disappoints with Sales Forecast

Gillette Co.’s James Kilts disappointed some investors yesterday by issuing a lower-than-expected sales forecast and failing to sate their appetite for more information in his first meeting with analysts since becoming chief executive of the struggling razor maker in February.

Boston-based Gillette, whose sales have been stagnant over the past several years, has the potential to post 3 to 5 percent annual sales growth in the long-term, Mr. Kilts said. Some on Wall Street were looking for at least 4-6 percent growth, in line with expectations for other major consumer products companies.

Mr. Kilts also frustrated analysts and investors by declining to be more specific on how long it would take to turn the company around and by sticking to Gillette’s policy of not issuing earnings guidance.

“There’s a lot of work to be done over the next six or nine months before earnings show any progress,”said Tim Drake, consumer nondurable goods analyst at Banc One Investment Advisors, which manages Gillette shares in its portfolios. “I think he is talking about doing a lot of the right things and the programs he’s putting in place are needed at Gillette.”

Among programs Mr. Kilts mentioned were focusing on mid-level products like disposable razors, the basic Duracell battery which the company will rename CopperTop and battery powered toothbrushes. Those had been neglected over the past several years as the company focused on premium products.

Mr. Kilts specifically noted that Gillette, a market leader in batteries, toothbrushes and electric powered toothbrushes was beaten to the market by several competitors with battery-powered toothbrushes.

During the presentation, Mr. Kilts repeated themes that have been true at Gillette for several quarters, including that the company has to get rid of excess inventories, increase advertising on products like CopperTop and cut costs.

“All the issues he highlighted are issues we anticipated,” said Ann Gillin Lefever, consumer products analyst at Lehman Brothers. “They’re actually worse than we thought, trade inventories in particular, and it’s going to take some time.”

Mr. Kilts declined to provide a definitive time frame for sales and earnings growth. “If it’s six months, 12 months, 18 months, what we’re going to do is the right thing for the company,” hesaid when pressed during the meeting for a more specific time frame.

Among other steps Gillette will take will be cutting down on the number of SKUs it sells and centralize some functions, like purchasing, in order to cut costs. Capital spending will also be cut as a percent of sales with a long-term goal of 7 percent, down from 10.4 percent in 1998. The company also plans to reduce inventories from 120 days at the end of 2000, to 110 at the end of 2001, with a long term goalof 90 day, which would save $300 million, Kilts said.

While some analysts were disappointed with the lack of earnings guidance from Kilts, others felt that the strategy is appropriate for a consumer products company focused on long-term growth. “It actually backs a company into a corner where they’e in a no win situation,”William Steele, consumer products analyst at Banc of America Securities, said.