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Last updated: April 24, 2013 6:54 pm
Bob McDonald is under renewed pressure as Procter & Gamble’s chief executive after disappointing sales figures triggered sharp questions on Wall Street about whether his turnround plan is working.
The P&G chief, whose brands include Cover Girl, Pantene and Crest, was grilled by analysts about why investments in new products and marketing were not producing better outcomes as they reacted to quarterly results on Wednesday.
Mr McDonald insisted that the consumer goods group’s performance was improving and “on track”. But analysts disagreed and its shares closed down 5.9 per cent at $77.12 in New York on Wednesday, reviving questions over whether P&G needs more radical structural changes to improve its fortunes.
P&G’s sales rose 2 per cent to $20.6bn in the three months to March 31. That was the same rate of growth rate as the previous quarter, but it fell about $100m short of the consensus forecast on Wall Street.
Net profits were $2.6bn, up 6 per cent from the previous year. Earnings per share, excluding restructuring and other charges, were 3 cents better than market expectations of 99 cents.
Last year, Mr McDonald launched a plan to cut costs and improve productivity as P&G faced discontent among investors including Bill Ackman, the hedge fund activist who owns about 1 per cent of the company.
But Javier Escalante, analyst at Consumer Edge Research, told the FT: “It’s become palpable that the issue is not about a cost structure that is out of whack. It’s about the low return on Procter & Gamble investment.”
On an earnings call, Ali Dibadj, analyst at AllianceBernstein, asked Mr McDonald: “If everything is going to plan, why is it pretty impossible to get to the high end of your [forecast sales] range?” Dara Mohsenian of Morgan Stanley asked whether he was comfortable with “the lack of the top line payback”.
The P&G chief said he disagreed with the characterisation. “I think we’ve made substantial progress in increasing the percentage of our business growing market share and I think that ties pretty directly to the [product] innovations you’ve seen,” he said.
The company said it was maintaining or gaining market share in more than half its markets. In the previous quarter, that figure had been just less than half, having risen from 45 per cent in the quarter before that.
Mr Escalante at Consumer Edge Research said P&G’s cosmetics business was struggling, partly due to tough competition from L’Oréal, and cancelling out the savings generated by group-wide cuts. He said it would benefit from being turned into a subsidiary with more independence from P&G headquarters in Cincinnati.
It would make sense for P&G to dispose of its Bounty and Charmin tissue divisions, he said, because they were US-focused and selling commodity products.
“They are doing a lot of innovation and it is not creating the market share lift,” Mr Escalante said. “Another business that nobody is going to be sad to let go is Duracell.”
Mr Dibadj at AllianceBernstein said M&A deals would serve as “window dressing” but would not solve P&G’s underlying troubles. “The core problems are in a few big segments,” he said, citing the cosmetics and laundry businesses.
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