Procter & Gamble will initiate a review of its brands to determine future marketing support to return balance to core brands. The firm's FY 2001 promotional budget will remain flat as a percent of sales in light of upcoming cost saving measures, newly named CEO A.G. Lafley told analysts Aug. 1.

"If a brand is strategic and has promise, we're supporting it," he noted. However, core brands will be given more support than startup brands, reflecting Lafley's desire to restore balance to P&G's portfolio, a strategy he announced when he replaced Durk Jager as CEO July 1 (¹ Also see "P&G North America/Beauty Head Lafley Named President, CEO" - Pink Sheet, 12 June, 2000.).

P&G currently markets 10 brands, including the Crest toothpaste franchise, with revenues over $1 bil. These brands represent 50% of sales and over half of profits for the company but may not have received appropriate marketing or R&D support, according to Lafley.

"The issue for P&G is balance," the exec said. "We simply have to get the balance back, the balance between top and bottom line growth, between innovation behind core established brands and new brands, the balance between stronger programs for big established markets and entry into new markets and the balance between all the drivers of total shareholder return."

New brand initiatives will continue but will be reduced to "better match marketing spending to sales and profit potential and timing," he said. Brand introductions will account for about 1% of the top line growth in 2001, as opposed to 2% in 2000, the company predicted.

Aside from the core business focus, P&G plans to cut costs to improve profit. The company will save $100 mil. after tax by holding flat the operating costs of the market development organization, global business shared services and all corporate staff.

Capital spending will be reduced, returning to the company's historical rate of 6% of sales as soon as possible, Lafley said. The company's transition into Organization 2005, a structural strategy to globalize brands and bring new products to market faster, will be extended one more year.

P&G will continue its minor brand divestiture program in FY 2001 and expects to divest a similar number of brands as in FY 2000, Lafley noted.

Brands considered for sale will be those that are "local, that are small, that are not relevant or important enough to a big enough consumer segment," the exec added, or are not "expandable or the carrier of a major new technology."

Clearasil, for example, represents less than 1% of P&G's overall business, and brand sales declined 12.2% for the 52 weeks ended June 18, according to data from Chicago-based Information Resources, Inc.

The brand, rumored to be on the sales block, is the market leader in the acne treatment category, however, and likely would claim a high price tag.

P&G is forecasting top-line growth to increase 4%-6% in 2001, excluding the negative effect of foreign exchange, which could take 2% off the top line, CFO Clayton Daley said.

For the fiscal first quarter begun July 1, sales should be up 3%-5%, while earnings per share estimates will be flat, he said.

In the second quarter, earnings per share are projected to be in the mid-single digits. For the second half of the year, profits will have to grow into the upper teens or low twenties to reach overall year-end estimates, a percentage many analysts feel will be hard to reach.

"We are comfortable that we can deliver from the mid- to the high end of that range," Lafley said, pointing to currency impact and new innovative program improvements that will be in place by that time. Heavier business investments also will occur during the first half.

P&G net sales in the health care segment jumped 36% to $3.91 bil., while net earnings rose 38% to $335 mil. in the fiscal year ended June 30. "Excluding acquisitions, sales increased 4% despite a 2% volume decline," the company reported. In the fourth quarter, health care sales were up 41% to $959 mil.

Overall, consolidated net sales for the year were up 5% at $39.95 bil. and earnings were down 6% to $3.54 bil. In the fourth quarter, P&G reported a 2% net sales increase to $9.66 bil. and net earnings of $516 mil., down 25%.

P&G Focuses On 10 Profitable Brands, Including Crest

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