Saturday, June 10, 2000

Steeper decline for P&G

Stock price takes 2nd hit day after dour forecast

By Amy Higgins
The Cincinnati Enquirer

        With Procter & Gamble's disappointing earnings forecast and management shake-up sinking in, investors drove the company's stock price further down on Friday.

        And although many investors and analysts are pleased with CEO Durk Jager's resignation and John Pepper's return as chairman, they also say it has little chance of recovering anytime soon.

        P&G traded as low as $55.811/4 at midday before rebounding to $56.683/4 at the 4 p.m. Friday close. In January the stock hit an all-time high of $117.75 and as recently as April traded at more than $70.

        The reason for the decline: This is the second straight quarter P&G has told investors and analysts it won't increase its profits as fast as it had said it would. Its three-month profit of about $420 million (or 55 cents a share) will be about the same as it earned last year. Wall Street rewards earnings growth and punishes companies that fail to meet promises of increased profits.

        “The stock price trades on emotion in the short run and earnings in the long run,” said Jim Berghausen, chief investment officer at Fifth Third Bank. “Emotion has clearly grabbed hold. ... It's going to take awhile before good positive emotion returns to the stock.”

        The steep decline has been shocking to investors all over Greater Cincinnati, where P&G likely is the most widely held stock among individuals and institutions, linking the fortunes of many Tristaters to the consumer products giant.

        “It will be a good year from now before Procter & Gamble approaches prices in the 80s again,” said Wilbur Yellin, a retired P&G chemist from Wyoming.

        Retirees like Mr. Yellin amassed P&G stock through the company's unique profit-sharing plan that rewards long-term employees with stock and options. While they typically diversify upon retirement, many keep a large portion of their portfolios in P&G stock because of company loyalty and strong past performance.

        Mr. Yellin points out that even after the turbulence of the past six months, P&G stock still has almost quadrupled in the last 10 years, adjusting for two 2-for-1 stock splits. That's almost a 15 percent compounded annual return.

        But assuming that average return continues, the stock price is still five years away from returning to its January high.

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