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P&G cutting 15,000 jobs
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June 9, 1999: 3:58 p.m. ET
$1.9B restructuring meant to speed product development; stock sinks
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NEW YORK (CNNfn) - Procter & Gamble Co. said Wednesday it would cut 15,000 jobs in a broad restructuring meant to lower costs and speed product development at the nation's largest consumer products company.
While analysts praised the company's plan -- its first major overhaul in six years -- the strategy failed to quell lingering doubts among investors, and P&G (PG) stock fell 2-1/2 to 92-5/16 late Wednesday after touching 90-1/2 earlier in the session.
In addition to the job cuts, which equal 13 percent of its work force, the maker of Tide detergent, Pampers diapers and other products will focus more on bringing out new products and less on building sales overseas, where it has focused its energy in recent years. The plan, which will cost P&G $1.9 billion after taxes, is meant to save $900 million a year by 2004.
Company officials project earnings per share will grow about 15 percent a year starting in the fiscal year that begins July 1, up from about 13 percent the last two years.
The company expects to take a $400 million restructuring charge during the current quarter and a $600 million charge during its next fiscal year to pay for the plan.
"I'm convinced that the costs of this process are well justified," P&G Chief Executive Officer Durk I. Jager told investment analysts in New York. "There is a determination in our company to win, even when there is some doubt if we can do it."
Weak fourth-quarter sales
Still, there was concern about the company's disclosure Wednesday that its current fourth-quarter sales growth will remain fairly stagnant, although company officials said they remain "on track" to match Wall Street's consensus earnings estimate of 53 cents per share.
Jager, however, did back off the company's previous profit projection of $70 billion over 10 years, made three years ago, saying achieving that number now would be "a stretch."
"People are going to be skeptical for a while," said Daniel K. Cantor, senior portfolio manager at Stein Foe & Farnham in New York. "Frankly, people don't like flat to lower volume [on sales]. I think they do deliver on what they say, though, and I think eventually, they will hit their goals."
Analysts said they were most encouraged by the company's decision to scale back its worldwide expansion and rededicate its resources to new product development. P&G is one of the 30 components of the Dow Jones industrial average.
"I think the difficulty is they haven't been able to develop new products," said Douglas C. Lane, president of Lane Capital Management Inc. "If [no-fat cooking oil] Olean was successful, for example, we wouldn't be here today."
Jager admitted P&G's innovative capabilities have been severely hampered in previous years as a result of the firm's push to capitalize on emerging markets following the fall of the Berlin Wall a decade ago. That will now change, he said, under a new corporate structure giving each of the firm's geographic units full responsibility for their profits and research and development progress.
"We spent too much time playing not to lose than playing to win," Jager said. "We simply weren't organized to be fast and innovate successfully."
P&G, which employs roughly 110,000 people worldwide, will certainly be leaner after eliminating roughly 13 percent of its workforce, including roughly 10,000 positions by fiscal 2002. Approximately 30 percent of those reductions will come from the company's North American operations, while another 45 percent will occur in Europe.
Ten plants are slated to close while the firm cuts back on several production lines.
Wednesday's announcement was hardly a surprise. P&G has faced growing pressure from its shareholders to cut costs, improve profits and boost the company's stock price, which has lagged in recent months. The company briefed industry analysts on its restructuring plans last week, including the grim news of expected job cuts.
"Realistically, it's going to take some time to get sales going again ... but the bottom line is we can't wait five years to demonstrate earnings growth progress," said Clayton Daley, P&G's treasurer.
P&G posted earnings of $1.04 billion, or 72 cents per diluted share, in its fiscal third quarter ended March 31, up from $961 million, or 65 cents per share, a year earlier. P&G has posted consistently higher profits on a year-to-year basis since 1995.
Its last big restructuring occurred in 1993, when it slashed 13,000 jobs and closed 30 plants. That program, which cost $2.4 billion to implement over four years, eventually saved P&G $600 million a year.
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Procter & Gamble
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