Procter & Gamble reaffirms outlook and pledges to cuts costs

- Last updated on GMT

P&G said it was sticking by previous earnings and sales expectations for the second quarter and is looking to trim back its manufacturing operations to cut costs.

The analyst meeting, which took place at 11.30am Eastern Board time and was chaired by CEO Robert MacDonald and CFO John Moeller, should serve to reassure that the company’s tentative recovery is still on course.

The company said it was sticking by estimates that organic sales growth, which excludes influences such as divestitures, acquisitions and currency fluctuation would continue at 3– 5 percent in the next quarter.

The company said that sales growth in its all-important new and emerging markets had helped to counteract stagnant sales in developed markets such as the United States and Europe.

Cutting back on suppliers and manufacturing

Likewise, the company also said the sales growth in new and emerging markets would also help to counterbalance rising costs, in the form of higher raw material and energy prices.

Cost pressures have led the company to rethink many of its current business operations, and during the meeting executives emphasized plans to simplify the business operations, most significantly be halving the number of global manufacturing platforms from 300 to 150 by 2014.

In line with this the company says it is also aiming to reduce the number of global suppliers from 75,000 to just 50,000 by financial year 2012.

Expansion of global brands in emerging markets

The company also said that it would be concentrating the expansion of its global brands in emerging markets, citing the continued roll-out of the Olay brand as well as encouraging Gillette users to upgrade.

The news follows a recent independent financial report cautioning that P&G is entering a challenging financial period in which it is likely to become a leaner and more efficient business, while profits for the current quarter still look under pressure.

These were the findings of financial analysis by Neil Carvin for the company's September 2010 quarter. The analysis was published on the Seeking Alpha website, showing that on most counts the company is bowing under current market conditions.

First quarter shows sales gains but lower profits

P&G announced that net sales for the frist quarter rose by 2 percent to $20.1bn on the back of sales volume growth in most business divisions and in all geographic regions, while organic sales grew by 4 percent.

However, net earnings for the period fell by 7 percent to $3.03bn, a figure that was largely impacted by rising costs during the quarter as well as the sale of one of its pharmaceutical businesses.

When it announced the first quarter results the company said it expected net sales would grow at an estimated 3 to 5 percent. However, it also said that higher gains in organic sales were expected to be negated by unfavorable currency exchange.

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