Tags: Procter | PG | consumer | stocks

P&G Adjusts to U.S. Economic Weakness

By    |   Tuesday, 27 Sep 2011 11:38 AM

Procter & Gamble (PG), the world’s largest consumer products company, is figuring out how to deal with a U.S. economy that continues to stagnate.

That stagnation has hurt the company’s U.S. sales. Revenue for Procter & Gamble rose by just 1 percent in mature markets as a whole during the quarter ended June 30 from a year earlier. But sales in developing markets climbed 8 percent.

Last year, Asia and Latin America accounted for 24 percent of P&G’s sales, and the company is intensifying its focus on emerging markets. The average P&G customer in China spends just $4 a year on its products, compared to $96 for the average customer in the United States. So there’s plenty of room for increase there.

Morningstar estimates that P&G can boost its sales to emerging markets by 8 percent to 12 percent annually in coming years. But the company can’t ignore the United States. P&G’s home country accounted for about 37 percent of its $82.6 billion in sales for the year ended June 30 and 60 percent of its $11.8 billion in profit.

As the U.S. middle class gets squeezed, P&G is putting focus on its cheapest and on its most expensive products.

Niche products

At the low end of the spectrum, P&G introduced Gain dish soap last year, which can sell for about half the price of its upscale Dawn Hand Renewal dish soap, launched in 2008.

At the high end, P&G began Olay Pro-X, its most expensive skin-care line, in 2009, with a starter set for about $60. The previous high price for that was about $25.

P&G also has confronted rising commodity costs, which is forcing it to lift prices. It remains to be seen how much those increases will hurt sales.

Standard & Poor’s analyst Loran Braverman has a hold rating on P&G shares. “We expect PG to benefit from innovation, acquisitions, and growth in new markets and categories,” she writes.

“PG's competitive strengths in developing markets include its broad product portfolio and sizable distribution network. However, higher-than-expected input costs are limiting near-term operating earnings gains.” The company next reports around Oct. 27.

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Procter Gamble (PG), the world s largest consumer products company, is figuring out how to deal with a U.S. economy that continues to stagnate. That stagnation has hurt the company s U.S. sales. Revenue for Procter Gamble rose by just 1 percent in mature markets as a...
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Tuesday, 27 Sep 2011 11:38 AM
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