5700 P&G Jobs on the Chopping Block - Analyst Blog
February 24 2012 - 11:04AM
Zacks
The world’s leading consumer product maker, Procter
& Gamble Company (PG) has announced that it will slash
over 4,000 non-manufacturing jobs during the current fiscal year.
This declaration follows the already planned 1,600 job losses,
which was announced by the company at the beginning of February
2012.
P&G anticipates that by trimming down 5, 700 jobs, it will
save up to $10 billion of cost, including $1 billion in marketing
costs and $3 billion in overhead costs, by the end of the fiscal
year ending in June 2016.
Out of its 129,000 employees, the company employs about 57,000
people as non-manufacturing staff. The job cuts announced makes
almost 10% of thiswork force. The process of retrenchment is
scheduled to be completed by the end of the fiscal year ending June
2013. Most of the jobs would be eliminated through a voluntary
early-retirement program.
P&G has not been able to please its investors lately because
of delivering a disappointing second quarter 2012, with net
earnings from continuing operations sliding 49.0% year over year to
57 cents per share. The results were also 47.22% below the analyst
estimates. Profits were restricted on account of charges associated
with the Appliances and Salon Professional businesses.
Last week, P&G finally managed to shed its Pringles potato
chip business by striking a $2.7 billion deal with Kellogg
Company (K) after its earlier plan fell apart when
Diamond Foods (DMND), the original buyer, became
embroiled in some accounting problems.
To accommodate the new sale out, the company also lowered its
forecasts for the third-quarter 2012 net earnings from continuing
operations and core earnings to be in the range of 89-95 cents per
share compared to 91-97 cents per share, announced previously.
However the analysts’ expected the third-quarter earnings to be
around $1.05 per share.
The decision to retrench comes at a time when uncertain economy
and high level of unemployment in the U.S. have induced the
customers to spend cautiously. This gave rise to low sales in the
U.S. and Europe. Moreover, high costs have brought the margins
down.
P&G had to reverse some price rises, which were meant to
help it to cope with higher materials costs after competitors did
not follow suit and it twice delayed the launch of new Tide Pod
detergent capsules because it could not match demand with its
supplies.
However, the increasingly competitive emerging markets with the
presence of stiff rivals like Colgate Company (CL)
and Unilever (UL) has enabled P&G to bolster
its presence in these promising areas. Although the company is
cutting ranks in the U.S., P&G is hiring people in China where
business is growing mid-double digits.
P&G has also announced plans to add around 20 manufacturing
plants between 2010 and 2015 in countries like Brazil, China, South
Africa, Romania and Poland. However, the company has no plans to
open any plants in the U.S.
Currently P&G holds a Zacks #4 Rank (short-term Sell
rating). On a long-term basis, we maintain a Neutral recommendation
on the stock.
COLGATE PALMOLI (CL): Free Stock Analysis Report
DIAMOND FOODS (DMND): Free Stock Analysis Report
KELLOGG CO (K): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis Report
UNILEVER PLC (UL): Free Stock Analysis Report
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