Thursday, March 30, 2000
P&G faulted for lack of info
Stock dived after forecast
BY RANDY TUCKER
The Cincinnati Enquirer
To some observers, Procter & Gamble Co. has shielded itself in a cone of silence since warning investors more than three weeks ago that profits for the current quarter would fall well below expectations.
Shareholders and financial analysts have complained that the Cincinnati maker of such products as Tide, Crest and Pampers has been too quiet about its strategy for regaining the billions of dollars in market value it has lost since projecting the earnings shortfall March 7.
They point out that management hasn't issued a news release or commented publicly about earnings since the week of the forecast, which estimated that P&G's third-quarter profit will be 10 percent to 11 percent below the same quarter of 1999. The forecast also cut growth projections for the year almost in half.
P&G's share price plummeted more than 30 percent the day the news broke, shearing away about $35 billion in market value on Bloody Tuesday.
And it wasn't just the large institutional investors that took the hit.
Many of the estimated 40,000 P&G shareholders in the Tristate, including retirees and company employees, lost as much as half their net worth forcing them to postpone retirements or deplete college funds for their kids and leaving them generally disenchanted with the company widely regarded as a bedrock of the community.
Consequently, investors from Wall Street to Main Street in Cincinnati have implored P&G's management to say something, anything, to reassure them that their investments are safe.
But the company has been silent, which some experts say is a big part of the reason P&G's share price has remained depressed, closing Wednesday at $58.371/2, up $2.121/2.
I think (P&G's) management has got to step up to the plate very quickly, said Douglas Christopher, who follows P&G for Crowell, Weedon & Co. They haven't done anything to regain credibility in the market. They should be out talking more to the financial community.
William Steele, managing director of Banc of America Securities, said he and his clients also would like to hear more from P&G about its plans for recovery.
Without any sort of news, and the most recent news being somewhat negative, it's hard to create a sense of urgency in investors' minds that they've got to have Procter & Gamble today, Mr. Steele said.
But in P&G's defense, he said, its managers have been pretty darn proactive in facing the investment community.
They've stood up. They've taken the calls, and they've answered, I think, a ton of hard questions, Mr. Steele said. But they're kind of in no man's land right now. Most companies, including P&G, are no longer discussing the current quarter because it's so late in the quarter.
P&G's fiscal third quarter ends Friday, with earnings for the quarter to be reported April 24. In the minds of many investors, the day P&G releases its earnings will be a day of reckoning for the $38 billion consumer-goods behemoth.
Waiting for report
It's kind of a wait-and-see-until-April 24 situation now, unless there's some sort of unforeseen event that causes people to want to come back to the stock, Mr. Steele said. Ultimately, we've got to get to the earnings. That's what's going to give investors some comfort. That's the type of news that I think is going to calm my whole group down.
That is, if earnings are in line with expectations, Crowell, Weedon's Mr. Christopher said.
Mr. Christopher said Wall Street is still skeptical about P&G's ability to recover financially and also has doubts about current management, including Durk I. Jager, P&G's president, chairman and chief executive.
Mr. Jager and his top lieutenants have been under fire from shareholders for most of the year, beginning in late January when news leaked that the company was considering paying an estimated $140 billion for drug powerhouses Warner-Lambert and American Home Products.
Investor reaction to the news drove the company's stock price down 19 percent a loss of about $38 billion in market value.
That, combined with the most recent stock decline, has cut P&G's market value in half in less than three months leading some shareholders to call for Mr. Jager's head.
Management has a serious problem, Mr. Christopher said. They've already got two strikes against them with the merger talks and the earnings warning. If they miss expectations again, the current management could be in jeopardy.
Mr. Jager and P&G's other top managers are already having a tough time regaining the trust of the financial community.
One reason is that many P&G analysts don't buy management's explanation that its recent financial problems are simply the result of short-term, unexpected occurences mainly increases in pulp and petroleum costs and competition in Brazil.
Management is blaming its earnings failures on a variety of factors, but its explanations are not convincing, Alice Beebe Longley of Donaldson, Lufkin & Jenrette said in a recent analyst report.
Ms. Longley said P&G's reasons for falling short of expectations all seem to fall within the scope of normal business operations and are probably not the only factors that led the company to lower projections.
P&G's restructuring efforts ... involving $1.9 billion in charges, may be causing unexpected disruptions in operations, Ms. Longley said. In fact, the company cited some of this, and we suspect that the disruptions may be massive.
Ms. Longley, like many of her peers, has dropped her rating on P&G in her case, from a Top Pick to Market Perform.
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