Procter & Gamble Has 1st Profit Drop Since ’52
Procter & Gamble on Thursday reported its first annual decline in profit since 1952, citing heavy investment in new products. But at least one analyst said P&G; is being hurt by competitors in the company’s traditionally strong product markets.
Procter & Gamble said its earnings for the fiscal year ended June 30 fell 29% to $635 million from $890 million in the previous year.
The fiscal 1985 earnings decline, which was not unexpected, came despite a 5% increase in worldwide net sales to $13.5 billion from $12.9 billion a year earlier.
In the final quarter of fiscal 1985, Procter & Gamble’s earnings plunged 37% to $115 million, compared to $183 million for the same period in 1984. The company’s worldwide sales in the quarter were $3.34 billion, a 3% increase from $3.25 billion for the same period in 1984.
Despite the earnings decline, P&G; paid stock dividends of $2.60 per share for the year, up from $2.40 the previous year. It was the 29th consecutive fiscal year in which the company paid increased dividends.
Hercules A. Segalas, an analyst with Drexel Burnham Lambert in New York and a former P&G; employee, said that P&G; made tactical errors that he thinks cost it business in the markets for toothpaste, disposable diapers and “chewy cookies.”
He said competitor Kimberly-Clark cut into Procter & Gamble’s sales by coming out nationally with disposable diapers that offered refastenable tabs on shaped disposable diapers. “Clearly, P&G; stayed with the old, rectangular, unfitted Pampers too long,” Segalas said.
He said P&G; also took too long with its national marketing of ready-to-eat Duncan Hines cookies because it lacked bakery capacity. And, he said, competitor Colgate-Palmolive scooped P&G; by marketing toothpaste in a pump dispenser, which now accounts for 12% of the total toothpaste market.
Procter & Gamble executives had warned previously that the company’s heavy investment in new products would hurt earnings. But, Chairman Owen B. Butler and John G. Smale, president and chief executive, pronounced the company “stronger and healthier” because of those investments in new markets.
“The only healthy way to build increased earnings is by increasing volume,” they said in a joint statement. “Key to establishing the foundation for future volume growth has been the restructuring of our business as we expand into new and related categories of products.”
Net earnings from international operations amounted to $96 million, a 23% decrease from the previous year. Procter & Gamble executives laid the decline on heavy investment in new products and losses due to currency exchange rates.
P&G;’s worldwide spending for all research and development activities on new and established products totaled $400 million.
Capital spending totaled $1.1 billion, a 24% increase from fiscal 1984. The company said it spent about one-third of that money to rebuild and modernize manufacturing capacity for disposable diapers in five countries.
