Procter & Gamble down, but has positives

June 18, 2006|By ANDREW LECKEY | ANDREW LECKEY,TRIBUNE MEDIA SERVICES

Idon't understand why my shares of Procter & Gamble Co. aren't doing better. Please fill me in.

-- J.T., via the Internet

This consumer-products giant recently launched its Folger's "stomach-friendly" Simply Smooth coffee for those who suffer upset stomachs from drinking coffee. Thirty-five million Americans have cut back their coffee intake because of stomach discomfort, according to the company.

But the firm that digested Gillette Co. in a $57 billion acquisition last fall could use a little stomach soothing itself. Profits are squeezed as large retailers such as Wal-Mart Stores Inc. and Walgreen Co. reduce inventories to keep costs in line. Significant inventory reductions also are expected in developing markets with slowing economies.

Procter & Gamble -- the manufacturer of Tide, Crest, Pampers, Pantene, Pringles and Duracell -- has faced price discounts, trade promotions and marketing spending from rivals that saved money from their restructuring programs, said A.G. Lafley, its chairman and chief executive.

Its shares are down 5 percent this year after gains of 5 percent last year and 10 percent in 2004. Despite a 37 percent increase in earnings in its recent quarter, the stock slipped because numbers were not as good as hoped.

James Kilts, the Gillette boss who helped negotiate the sale to P&G, is stepping down as head of the Gillette division. Until his retirement in October, he will work on integrating the merged firms and spend time with his replacement, Mark Leckie.

Kilts, who also helped engineer the 2000 sale of Nabisco to Philip Morris, could receive an estimated $165 million in severance and change-in-control benefits.

Looking at P&G's positives, its Fusion razor had a successful launch this year and played a big role in increased quarterly sales. The addition of Gillette's razor and blade business should give a long-term boost to operating margins.

Founded in 1837, P&G sells more than 300 brands globally. New products include Olay Definity to improve uneven skin tone and Crest Pro-Health toothpaste.

Consensus rating on P&G shares from analysts who track them is between "buy" and "hold," according to Thomson Financial. That consists of four "strong buys," six "buys" and nine "holds."

Earnings are expected to increase 4 percent this year, in line with the cleaning products industry. Next year's projected 16 percent rise compares with 5 percent forecast for peers. The five-year annualized growth rate is expected to be 11 percent versus 12 percent industrywide.

I invested in Oppenheimer Global Opportunities Fund about a year ago and it performed nicely. What's the outlook for this fund?

-- R.P., Burbank, Ill

Although it travels to the beat of a different drum, it's worth owning.

Portfolio manager Frank Jennings over the past decade has produced remarkable returns by going his own way and sticking with his convictions. He was early to grasp the potential of Sirius Satellite and Advanced Micro Devices, and his fund benefited.

The $4.5 billion Oppenheimer Global Opportunities Fund is up 27 percent over the past 12 months to rank in the top 4 percent of world stock funds. Its three-year annualized return of 26 percent puts it in the top 2 percent of its peers.

"This is an unorthodox, aggressive, go-anywhere fund looking for big ideas and trends, whether economic, demographic or sociological," said Dan Lefkovitz, analyst with Morningstar Inc. in Chicago. "Currency hedging last year provided big gains."

Andrew Leckey is a Tribune Media Services columnist. E-mail him at yourmoney@tribune.com.

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