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Expectations waning for Procter & Gamble Co. comeback

CFO: There continue to be many challenges
Posted: 8:32 AM, Jul 26, 2018
Updated: 2018-07-29 15:42:33Z

CINCINNATI - Dollar Shave Club is growing by “almost double digits,” parent company Unilever told investors last week.

Kimberly-Clark Corp. revealed on Tuesday that an intense promotional environment is driving down prices on its diapers.

Neither is particularly good news for Procter & Gamble Co., which reports fourth-quarter earnings next Tuesday, even as Wall Street analysts lower their expectations for the company.

P&G’s Gillette brand has been losing market share for months to smaller brands like Dollar Shave. And in April, P&G blamed “reduced competitor pricing” for a roughly 5 percent revenue dip in its baby care brands in the quarter that ended March 30.

In June, Chief Financial Officer Jon Moeller outlined eight new challenges P&G is facing all over the world, including a shortage of U.S. truck drivers and a “retail trade transformation” in which U.S. stores are carrying less inventory to compete against online retailers.

“There continue to be many challenges,” Moeller said. “I went through a litany of the issues not to depress you or to concern you but to help you understand the totality of what we're managing.”

Analysts are increasingly concerned.

Market “share losses at P&G continue unabated, with multi-year share losses in grooming and baby care likely to continue into FY19,” wrote Jeffries analyst Kevin Grundy in a July 9 report. Grundy downgraded the stock from “buy” to “hold.” It’s one of five rating downgrades for P&G shares since April 20.

UBS analyst Steven Strycula also downgraded the stock from “buy” to “neutral” on July 19. He said P&G might be forced to reduce its profit projections for the coming year because of rising costs and increased competition, which will limit its ability to raise prices.

That’s what happened to Kimberly-Clark in its most recent quarter. The company reduced its full-year earnings projection because of weak sales growth and higher commodity costs. The problem was particularly acute in China, where its Huggies brand competes against P&G’s Pampers.

“People are being very aggressive on price,” said Michael Hsu, chief operating officer for Kimberly Clark. “We are in this for the long haul and right now we are matching on price although we don’t want to win on price. And we want to return to winning on product quality and brand positioning.”

Unilever fell short of analyst expectations on sales growth in the first half of 2018, partly blaming a Brazilian trucker’s strike that reduced sales in that country by 9 percent. P&G also warned shareholders in June that the transport strike would impact its Latin American results.

“The transport strike lasted for 11 days, and during this time, we were wholly unable to ship the products to retailers or indeed get any raw materials into our factories,” said Uniliver CFO Graeme Pitkethly. “ We expect to recover around half of the lost sales across quarter three and quarter four."