P&G cuts growth targets as China slows
By David Jones
LONDON (Reuters) - Slower growth in China and tough markets in Europe and the United States prompted Procter & Gamble , the world's largest household product maker, to cut its growth forecasts on Wednesday in the midst of a $10 billion cost-cutting program.
The U.S. maker of Tide laundry detergent, Gillette razors and a host of other products also blamed the strong dollar and higher commodity costs for hitting growth after admitting it had struggled to grow operating profit over the past three years.
Chief executive Bob McDonald said growth in developed markets, making up 60 percent of sales, had dropped off significantly, while in emerging markets it suffered mandated price cuts in Venezuela and import restriction in Argentina.
"We have seen sequential deterioration in the rates of market growth in both the U.S. and Europe, and there has been a slowdown in the rate of market growth in China," he told investors at a conference in Paris.
The Cincinnati-based group has been struggling to reignite growth and announced the $10 billion cost-cutting plan earlier this year. The company has frustrated investors who want a quicker turnaround as it underperforms competitors.
European rivals saw their shares hit with Unilever off 1.9 percent at 2,036 pence, Reckitt Benckiser down 0.9 percent at 3,368 pence. In Germany, Beiersdorf was off 1.8 percent at 52.58 euros and Henkel 1.9 percent easer at 52.12 euros by 0630 EDT.
The tough trading prompted McDonald to cut his forecast for the group's April-June fourth quarter to underlying sales growth of 2-3 percent, down from 4-5 percent, while the core quarterly earnings target was trimmed to 75-79 cents per share, from 79-85 cents.
McDonald said it would take time to reverse the negative trends, and expected little improvement in its 2012/13 year starting July 1. He forecast underlying sales growth of 2-4 percent as he expected the group to restart growing its overall market share.
He also forecast 2012/13 core earnings would be flat to up by a mid-single digit percentage. Stripping out foreign exchange, core earnings per share would show growth of a mid-to-high single digit percentage.
McDonald, CEO since July 2009, said results over the three years were not as strong as he would have liked, adding the group was doing relatively well on sales growth but needed cost cuts to kickstart profit growth.
He was looking at a more focused approach to revive the company by concentrating on its biggest 40 markets, its 20 largest innovations and its 10 most important developing markets.
Analyst said P&G has been underperforming rivals like Unilever and Colgate-Palmolive and this prompted its big restructuring plan to cut 5,700 non-manufacturing jobs and $10 billion costs by the end of 2015/16.
P&G, like many other household products makers, has raised prices to mitigate the impact of higher commodity costs. Some of those increases, in areas like North America, Britain and Mexico, did not stick as competitors did not match them.
(Reporting by David Jones; Editing by David Holmes and Dan Lalor)
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