Procter & Gamble Co. (PG:US), the consumer products company targeted by activist investor Bill Ackman, reported fourth-quarter profit that beat analysts’ estimates, helped by price increases.
Net income in the period ended June 30 advanced 45 percent to $3.63 billion, or $1.24 a share, from $2.51 billion, or 84 cents, a year earlier, Cincinnati-based P&G said today in a statement. Profit excluding some items was 82 cents a share. Analysts projected 77 cents, the average of 21 estimates (PG:US) compiled by Bloomberg.
Chief Executive Officer Robert McDonald is working to prove his pricing and plan to save $10 billion by 2016 through cutting jobs and marketing will be enough to improve results. Last month, Ackman’s Pershing Square took a $1.8 billion stake in P&G, and people familiar with the matter said he plans to push for leadership changes.
“It’s easy to clamp down on spending for three to six months, but he has to convince investors that he can permanently reduce P&G’s cost structure and, at the same time, grow sales,” Erik Gordon, a business professor at the University of Michigan, said in an e-mail.
P&G, the maker of Tide laundry detergent and Duracell batteries, rose (PG:US) 3.1 percent to $65.50 at the close in New York. The shares have declined 1.8 percent this year.
McDonald said on a conference call today that the company has had talks with Ackman, and declined to provide specific details. The CEO also forecast job reductions of 10 percent at P&G by the end of 2012.
“There’s an element of pulling out all the stops to look better,” Ali Dibadj, an analyst at Sanford C. Bernstein & Co., said in a telephone interview. “And that’s fine if that’s continuous. If Procter & Gamble needed an activist scare to do better, that’s great.”
P&G said it will repurchase $4 billion in stock this fiscal year. In June, the company suspended stock repurchases to protect itself from credit downgrades. Chief Financial Officer Jon Moeller said on a conference call today that the company reconsidered after having a “tremendous cash quarter.”
Price increases across all product segments added 4 percent or more to net sales growth in the quarter, P&G said. While the higher prices helped counter increased costs for raw materials, volume was little changed from a year earlier.
Price reductions in six areas including U.S. laundry products are now helping P&G boost market share, Moeller said. P&G will cut prices by $400 million, he said.
Commodity costs will increase modestly next year, executives said on the conference call.
Fourth-quarter sales (PG:US) fell 1.2 percent to $20.21 billion, trailing the $20.25 billion average of analysts’ estimates compiled by Bloomberg.
Executives on the conference call said they expected the company to return to long-term growth rates by fiscal year 2014, helped by a strengthening U.S. business. Dibadj called the projection “bullish.”
McDonald said he was working to make the company’s culture more productive and accountable.
“I’m very encouraged by the leadership team we have in place now,” he said. “I just wish I had done it three years ago. I think we’ve got the right team.”
Ackman, who said his P&G stake is his largest initial investment ever, this year won an effort to remove Canadian Pacific Railway Ltd. (CP) CEO Fred Green and replace him with Hunter Harrison. Ackman also pushed Fortune Brands Inc. to break up, and the company last year split into spirits maker Beam Inc. (BEAM:US) and a company that sells home products such as faucets and locks.
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