P&G;’s Top Executive to Step Down; Firm Issues Profit Warning

Procter & Gamble Co. on Thursday said its chief executive was stepping down after only 17 months at the helm of the largest U.S. household products maker, as it warned of disappointing earnings for the second quarter in a row.

The departure of 57-year-old Durk Jager, who was also chairman and president, marks the culmination of months of turmoil at P&G;, once a bastion of conservative management and a longtime haven for investors looking for steady profit growth.

“Durk Jager tried to take the company down a different track from what you would call P&G;’s historical norm,” said Rob Izmirlian, a consumer products analyst at S&P.; “But it didn’t work out the way he envisioned.”

In a move seen as refocusing the company on its core soap and personal-care businesses, P&G; brought back John Pepper, 61, as chairman. Pepper had served as chairman and CEO from 1995 to 1999, when Jager replaced him. It named another company veteran, Alan Lafley, 52, to take over as president and CEO. He was previously president-global beauty care and North America.

The Cincinnati-based maker of brand-name goods such as Tide laundry detergent and Crest toothpaste also said it expects earnings for its fiscal fourth quarter ending June 30 to be little changed from the year-earlier earnings of 55 cents a share.

Analysts were expecting 64 cents for the latest quarter. The company previously said it expected a 15% to 17% increase.

The news sent shares in P&G; down $4.38 to close at $57.50 on the New York Stock Exchange, pulling other blue chips down with it. Since P&G; reached its 52-week high of $118.38 in January, the company’s stock has dropped 52%.

P&G; attributed the expected earnings shortfall to lower volume growth, competitive pressures and reduced marketing support on several key businesses. Sales are expected to grow by 2% to 3%, down from an April estimate of 5% to 7% for the current quarter.

Under Jager’s tenure, P&G; posted its first decline in operating profit in eight years and began a sputtering push into new products and businesses.

That initiative included ill-fated talks in January over a three-way merger with Warner-Lambert Co. and American Home Products Corp., as P&G; flirted with a bold foray in pharmaceuticals. But a sharp drop in the company’s stock price signaled the market’s displeasure with such a shift.

Lafley said the magnitude and pace of change P&G; undertook in the current fiscal year was a major factor in its disappointing results.

“What investors want from P&G; is a boringly predictable earnings stream, which means investment behind core brands: Tide, Pampers and Crest,” said William Steele, consumer products analyst at Banc of America Securities.

Lafley said his priority is to return P&G;’s big, core businesses to consistent year-to-year sales and profit growth. Over the next six weeks, he said, he will sort through established and new businesses to make choices on investments and ensure a balanced portfolio that will drive profit and revenue growth. He said he would focus on the “tough choices” needed for better cost control.

“We will hold sales, research and administration [costs] flat on established businesses next year,” Lafley told analysts after the announcement, adding that he would cap cost growth for new businesses in the low single-digit percentage range next year.

Jager, who is officially retiring July 1, said in a statement that it was a personal decision to step aside. “It’s unfortunate our progress in stepping up top-line sales growth resulted in earnings disappointments,” he said.

For the fiscal year, P&G; said it expected core net earnings per share to grow about 4% from the previous year.

It lowered its outlook for fiscal 2001, saying earnings growth was expected to be 11% to 13% above the new fiscal 2000 estimate. Analysts, who welcomed the revision as more realistic, said P&G;’s previous estimate had been for 13% to 15% growth.

Merrill Lynch, in a research note issued Thursday, said P&G; may see its results in the June quarter hurt by slow growth categories. It also mentioned the impact of the weak euro against the dollar. The currency effect reduces the U.S. dollar value of revenues generated in Europe for U.S. corporations.

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Steep Decline

Procter & Gamble’s shares have plunged 52% since

hitting a 52-week high

of $118.38 in early

January. Weekly

closes and latest:

Thursday:

$57.50,

down $4.38