Procter & Gamble Company (The) (PG)

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Procter & Gamble (PG)

Q3 2011 Earnings Call

April 28, 2011 8:30 am ET

Executives

Jon Moeller - Chief Financial Officer

Teri List - Senior Vice President and Treasurer

Unknown Executive -

Robert McDonald - Chairman, Chief Executive Officer and President

Analysts

Javier Escalante - Weeden & Co., LP

Lauren Lieberman - Barclays Capital

Constance Maneaty - BMO Capital Markets U.S.

John Faucher - JP Morgan Chase & Co

Mark Astrachan - Stifel, Nicolaus & Co., Inc.

Ali Dibadj - Sanford C. Bernstein & Co., Inc.

Alice Longley - Buckingham Research Group, Inc.

Joseph Altobello - Oppenheimer & Co. Inc.

William Chappell - SunTrust Robinson Humphrey, Inc.

William Schmitz - Deutsche Bank AG

Jason Gere - RBC Capital Markets, LLC

Wendy Nicholson - Citigroup Inc

Timothy Conder - Wells Fargo Securities, LLC

Douglas Lane - Jefferies & Company, Inc.

Jon Andersen - William Blair & Company L.L.C.

Linda Weiser - Caris & Company

Nik Modi - UBS Investment Bank

Christopher Ferrara - BofA Merrill Lynch

Presentation

Question-and-Answer Session

Christopher Ferrara - BofA Merrill Lynch

Thanks, guys. So I know you just talked about balance, Jon in particular, I guess around when you started talking about 2012 a little bit and that you expect to grow both top and bottom line. And I guess, I just wanted to understand without delving too far into fiscal '12. It does seem like there's got to be somewhat of a prioritization, right? I mean because with commodity costs to your point doing what they're doing and the fact that the pricing has lagged that pretty significantly. I guess can you talk about conceptually how you think about the commitment to the reinvestment you guys have been making and the strategy that's been working and the commitment you made to investors to deliver that high singles to low double number because it just seems like both will pretty difficult next year especially with the 3-point drag from the tax rate normalizing? Thanks.

Jon Moeller

Well, I'd say couple of things. One, the tax rate will continue to be lower as I talked about. So it won't be a full annualization of the benefit from this year. The question behind the question in terms of are we willing to make priority calls to be able to deliver both the top and bottom line. The definitive answer is, yes. We have many more things that we'd love to spend on that we're not, simply to try to deliver both top and bottom line growth. And I expect that will continue to be our approach going forward. And you also have to be careful about looking, as I know you know, at just one variable, which is commodity cost. We also have, on the other side of the equation, a relatively favorable foreign exchange development as well, which should enable us to deliver both top and bottom line growth and support a number of investments though not all we'd like.

Robert McDonald

Chris, I would say that one of the reasons that Procter & Gamble is one of the most admired companies in the world for the development of leaders and that many Procter & Gamble leaders lead Fortune 500 companies around the world is because of their ability to lead during times of uncertainty and deliver balanced results both on the top and bottom line. And any leader at Procter & Gamble knows that they have to deliver top line growth and bottom line growth. And the way to square that circle is to make sure that we're constantly and consistently working to make the company more productive. That and over my 30 year career, every year, we have increased the productivity of the company 4% to 6%. So we've got to have the cost savings programs in place. We've got to do -- we've got to go after headcount. We've got to reorganize the company. We've got to do the things necessary to make sure we can deliver that bottom and top line growth. Remember our overarching objective is to be in the top third of our peer group in terms of total shareholder return. It's really that simple. So a simple focus on a single metric is obviously not sufficient for the leaders of our company.

Operator

Your next question comes from the line of Joe Altobello with Oppenheimer.

Joseph Altobello - Oppenheimer & Co. Inc.

Thanks. Just first, one question on the new Tide PODS. How patent protected is this? What's been the response from retailers, competitors? And what sort of the margin pickup versus baseline Tide? And then maybe another question on the relaunch of Fusion ProGlide. How that's going?

Robert McDonald

Relative to the patent protection on Tide PODS, Joe, you can imagine it's quite strong. If you look at our dishwashing business and you see what we've been able to do with the single-unit dose in dishwashing, you look at what we've been able to do, introducing automatic dishwashing on top of the strong hand dishwashing businesses we already have. It's one of the reasons our Home Care business has been one of our fastest-growing businesses around the world and Teri reviewed those results. All of that patent protection is -- exists in the laundry form as well, not just on the chemistry and the film and how that's done, but also on the manufacturing process because many of our manufacturing processes are also patented and protected since there's intellectual property there. So I don't imagine that this is going to be able to be copied in anyway that it will become a threat. We're expecting this form to be a big success. We think it will be up to 30% or more of the volume in the United States. And importantly, even though we didn't mention it in our remarks, this is really a good thing for the environment, and it's a good thing for retailers the liquid form within the pouch, within the packet is twice as concentrated as liquid laundry detergent. So you're going to do a lot better for the environment, a lot better for retailers, a lot better for homemakers in terms of using this product.

Jon Moeller

And your question on Fusion ProGlide and the relaunch there, we really just began that. So we expect very good things but it's too early to quote a result.

Robert McDonald

Yes. I was at Boston yesterday and I reviewed the relaunch plan and I'm very excited about we've gotten great customer support. The inventory is back in the store as we've restarted advertising back at the launch weights, and we have some new campaign executions which you'll be seeing very soon that I think you will really like. So please continue watching.

Operator

Your next question comes from the line of Connie Maneaty with BMO Capital Markets.

Constance Maneaty - BMO Capital Markets U.S.

Could you give us your perspective on these declining category growth rates? When the last time was that you saw them? How long you expect it to continue? And with a flat to down birth rate in the U.S., what is the likelihood that the categories can pick up without that?

Robert McDonald

Well, Connie, I think that what we're seeing is, at least in part, the effect of the increasing gas prices. I think what the volatility that Jon talked about month to month from January to March is in part at least affected by gas prices. I also have to say I think it's affected by consumer confidence. And as you see, for example, the S&P rating of the United States being lowered, as you hear politicians fighting with each other rather than getting after what the problems are, that affects consumer confidence. And as Larry Summers once told me, consumer confidence is the cheapest stimulus that can be bought. So we're all hopeful that we'll get back to a situation where the markets will be growing at passed rates and we're ready for that. Relative to birthrates and other things, I continue to believe the U.S. is a growthful market, and it's up to us to make it that way. We have to do that through our innovation. I think you're going to see that Tide PODS, as an example we just talked about, will return market growth to the Laundry category. I think you'll see that Fusion ProGlide will return market growth to the Blades and Razors category. And so we take responsibility for delivering market growth. Relative to birthrate, the birthrate in the United States is shifting. The minority will become the majority by 2040, 2050. And we're still counting on a growing Baby Care business.

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