Procter & Gamble still a good bet for long-term investors

OUTLOOK

Some see recent slide as opportunity for consumer products giant

March 12, 2000|By Amanda J. Crawford

Consumer products giant Procter & Gamble surprised Wall Street last week with news that its earnings for its fiscal third quarter ending March 31 would fall 10 percent to 11 percent from a year earlier. The announcement caused its stock to drop more than $26 a share, erasing more than $35 billion in market value and contributing to a 374-point decline in the Dow Jones industrial average, its fourth biggest point loss ever. The maker of products such as Ivory soap, Crest toothpaste, Pampers diapers and Tide laundry detergent blamed competition in Latin America, higher-than-expected costs and a delay in U.S. approval of osteoporosis drug Actonel for the shortfall.

What happened with Procter & Gamble? What is the outlook for the company? Was Wall Street's reaction warranted?

Tony Vento

Consumer products analyst, Edward Jones, St. Louis

They have reorganized the company and focused very intensely on improving their sales growth, but they lost focus on the cost side. So while their sales have improved, their costs have gone up. Consequently, earnings are going to fall short of expectations.

Overall, the outlook for the company is still good. I think the market has overreacted to what are short-term issues that can be corrected relatively quickly. Obviously this is a disappointment and somewhat an embarrassment early on in this reorganization. But we have a buy on the stock. If you do buy the stock, you are ultimately going to be glad you did.

Heather Hay

Managing director and group head of consumer products, Merrill Lynch Inc., New York

The stock decline was not only based on the fact that earnings were reduced, but having Procter & Gamble, which is really the bellwether stock and the leadership in this group, be unable to meet expectations calls into question whether the entire industry outlook has really changed. I think the answer is probably yes, it has. It appears as though the industries they compete in are more mature than they have been in the past. It is more difficult for a company to raise prices, and restructuring benefits may be reaching their limitations. So the growth rates have slowed and investors aren't willing to pay as much for that as they used to.

Marvin B. Roffman

President, Roffman Miller Associates Inc., Philadelphia

This stock market environment cannot accept any kind of negative surprise. Today it is "off with his head" if there is any kind of disappointing news. Wall Street doesn't have patience. Momentum investors and a major shift into technology exacerbated the rapid decline in the stock.What really made this worse is just prior to the bombshell March 7, a senior official for the company met with a group of analysts saying the company was right on target with its numbers.To come out a short time later with this news was just devastating.

Wall Street's short-term thinking does create opportunity. I just bought more P&G stock myself and, being a long-term investor, I think I made the right move. I do think the company will get itself back on track.

Douglas A. Christopher

Analyst, Crowell, Weedon & Co., Los Angeles

I think that pessimism is at an extreme and historically that's been a buying opportunity in a blue-chip company. Investors with a three- to five-year time horizon will be well rewarded. To be specific, if you buy 100 shares of P&G today for approximately $6,000, we think those shares will be worth $12,000 within the next three to five years. I'm not saying things are coming up roses here, but I do think the share price reaction more than reflects the bad news and even further earnings misses.

Procter & Gamble is still a consistent growth machine. People don't stop brushing their teeth, using their Tide or their Pampers because there is a 10 percent shortfall in third-quarter earnings. This is a company that still has a lot of strong brands across the board, a global presence and exceptional financial strength.

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