Procter & Gamble Co. plans in the near term to slash prices on some health and personal care products, to halt U.S. market-share erosion in categories where competitors did not follow the firm's recent price hikes.

The price rollbacks will subtract about $400 million from the $3.5 billion in pricing increases made during the firm’s fiscal 2012, which ended June 30, Chief Financial Officer Jon Moeller said Aug. 3 during P&G’s fourth-quarter earnings call.

Moeller declined to identify the brands affected, but pointed out prices for most of the firm’s brands are not being cut. “More prices are holding than not,” he said.

Explaining the decision, Moeller noted that in product categories where competitors, including private label, also raised prices, the firm stands “in very good shape.” However, “in some instances, where competitors have not taken pricing [changes], we need to adjust. This is relatively easy to do but takes some time to fully execute.”

P&G declined to specify how much share it lost to other personal and health care product firms during the firm’s fiscal 2012. However, the company lost share in about two-thirds of its businesses during the fourth quarter, with some positive momentum achieved toward the end of the April-June period with its first round of price rollbacks.

“This is about a culture and a mindset ... and it puts us in a position to be more fit to win in a very difficult economic environment.”

– P&G CFO Jon Moeller

In the quarter, P&G implemented $200 million in price reductions in categories including blades and razors and powder laundry detergents, as it said it would in June when the company adjusted downward its fourth-quarter and full-year guidance Also see "P&G Slashes Guidance, Promises Sharper Focus, Bigger Innovations" - Pink Sheet, 25 June, 2012.).

Since that pricing action, P&G has grown its U.S. share of blades and razors by 0.4 points in the past month compared with a 1.7-point share decline in the past 12 months, the firm says. Laundry detergents have followed a similar trend.

The Cincinnati-based firm in 2011 implemented a broad 3% price hike to offset commodity costs, predicting at the time that others would follow Also see "P&G To Hike Prices At Least 3%, Expects Others To Follow" - Pink Sheet, 31 October, 2011..

Personal Care Down 4%

The marketer of the Cover Girl cosmetic and Pantene hair care brands reported a 4% decrease in beauty-care sales to $4.8 billion for fiscal 2012. Volume in beauty care sales decreased mid-single digits due to softness in the U.S. and China, though prestige products increased mid-single digits, fueled by new fragrances and the SK-II brand.

Sales in P&G’s health care division, which includes the Vicks and Metamucil brands, decreased 1% to $2.9 billion for the full year. While health care volume increased by mid-single digits, overall volume sales slowed as organic products slipped by low-single digits, the firm reported in its same-day release.

Net sales for the quarter declined 1% to $20.2 billion, P&G reported, attributing the dip to softness in developed markets. Organic sales increased 3%, versus initial projections of 4%-5%. Net sales for the year advanced 3.3% to $83.7 billion.

P&G booked net earnings of $3.67 billion for the quarter, up 44% compared with the prior-year period, reflecting the sale of its snacks division. For the year, net earnings declined 9% to $10.9 billion.

Answering Analyst Skepticism

Analysts anticipated P&G’s fourth-quarter results in light of the firm’s announcement in June that it was slashing its sales and organic growth projections for the quarter due to slow market growth rates and softness in developed regions.

President and CEO Bob McDonald took responsibility for the shortcomings at the time and acknowledged that the company had to improve its delivery of “impactful” innovations. P&G leadership vowed to launch “bigger” products and pursue a more “balanced” growth objective globally.

The company also recommitted to reaching its goal of $10 billion in cost savings by 2016 while achieving organic growth of 5% in 2014.

P&G aims to hit those targets by concentrating resources on its 40 largest and most important markets, which are weighted heavily toward developed regions, its 20 largest innovations and 10 most important developing-market businesses “to win where it matters most,” McDonald says.

But during the earnings call, analysts’ questions pushed the executives to defend their savings and organic growth goals and the plan to get them there.

Sanford C. Bernstein & Co. analyst Ali Dibadj pressed the company on what he characterized as the “bullishness” of its plans.

“Have you found big new buckets of cost savings? Because a couple hundred million dollars here and there won't do it. Are you expecting a hockey stick of top line growth to get you to 5%?” he asked during the Q&A segment.

He went on: “How are you going to plug the hole on $10 billion, given your top line is not growing the way it was expected to grow?”

McDonald responded that while much of the savings derives from reductions in high-level executive positions, it also comes from actions such as digitizing the organization, allowing the entire firm to operate more effectively and with less overhead. He noted the company is ahead on some of its shorter-term targets.

Moeller added: “It's not like we're looking at this $10 billion figure and saying 'that's it.' This is about a culture and a mindset ... and it puts us in a position to be more fit to win in a very difficult economic environment.”

Other analysts expressed concern with the businesses outside the company's 40-20-10 plan. Citigroup analyst Wendy Nicholson suggested the firm’s presence in a number of fast-growing, developing regions – which account for about 50% of the firm's sales – could “lag” without greater focus.

Edelweiss Securities Ltd. analyst Abneesh Roy stated similar concerns in an Aug. 6 report, noting P&G's focus on core categories, countries and innovations could provide an opportunity for Unilever PLC – its biggest competitor in markets such as India – to grab more market share.

“India remains a key growth market, expanding faster than other developing markets at 21% [year-over-year], led by a strong performance in both hair care and fabric care,” Roy noted. “P&G's softer stand in emerging markets provides Unilever with a good chance to further tighten its grip on these markets.”

McDonald responded that P&G's 40 largest markets and 10 developing markets represent “a pretty good swath” of its business, but the firm has no intention to “disregard” those areas outside that scope.

Moeller added that “we couldn't agree more with the need to be fully present [in high-growth developing markets] and we feel comfortable with the top 10 as being actually the way to maximize our presence in those markets. And we'll get to the others as time and funding allow.”

Pressure increased on P&G to improve its results with the recent investment in the firm by activist investor William Ackman and Pershing Square Capital Management, which acquired a $1.8 billion stake in the company last month. Some analysts speculate that the investor may urge P&G to replace McDonald or divest non-core brands Also see "Activist Investor May Urge P&G To Lose Non-Core Brands, McDonald" - HBW Insight, 23 July, 2012..

The company also announced plans to buy back shares valued at around $4 billion during this fiscal year.

P&G Plans More Price Cuts In 2013, Defends Savings Plan

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