P&G loses out as consumers switch to cheaper brands

By Simon Pitman

- Last updated on GMT

Related tags: Revenue, Marketing, Stock market

Profits fell 18 percent for Procter & Gamble as the personal care giant lost market share during its fourth quarter, sending shares tumbling.

Net sales fell by 11 per cent during the quarter to reach $18.66bn, a figure that fell short of analysts expectations, who had forecast sales in excess of $19bn for the period.

P&G blamed the performance on unfavorable exchange rates, which impacted the sales by 9 percent, where as sales volumes declined by 5 percent, underlining the fact that the company’s market share has been hit.

The dip in sales forms part of a general trend, whereby consumers are switching from more expensive mass market brands to cheaper brands, particularly private label products.

Sales for all divisions fell in Q4

Sales for all of the company’s divisions fell during the quarter, with the figures for the men’s grooming business, which holds the Gillette brand, falling by 17 percent.

The performance meant that sales for the full year fell by 3 percent to reach $79.0bn, a figure that still places it in a clear leading postition as the largest consumer goods company in the world.

Net earnings for the fourth quarter fell from $3.02bn in the corresponding quarter last year to $2.47bn, while full year net earnings declined 11 percent, down from $13.43bn in 2008, to $12.07bn this year.

Quarterly performance sends shares falling

Investors responded negatively to the results, with share prices falling 3.4 percent during early morning trading on the NYSE today, to reach $53.63.

“In fiscal 2009 and particularly in the fourth quarter, P&G faced one of the most difficult macroeconomic environments in decades,”​ said A. G. Lafley, P&G chairman.

“In fiscal 2010 we will accelerate investments in innovation, portfolio expansion and consumer value to grow our core business and to serve more consumers in both developed and developing markets,”​ said newly appointed CEO Bob McDonald.

Simplification and lowering costs

“We will also continue to drive simplification efforts and leverage P&G’s scale to increase productivity, improve execution and lower costs,”​ McDonald added.

The following quarter is again expected to be challenging for the company, which is forecasting that currency exchange is likely to impact results by around 7 – 10 percent.

Looking ahead to the full fiscal 2010, the company says that it is still aiming to achieve organic sales growth of 1 – 3 percent, while the impact of foreign exchange is expected to be reduced to between zero and 1 percent.

Related topics: Business & Financial

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