Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : Procter & Gamble (PG) -- Ignore unavailable to you. Want to Upgrade?

To: Bald Man from Mars who wrote (116)	3/10/2000 10:09:00 AM
From: George Papadopoulos	Read Replies (1) \| Respond to of 196

March 10, 2000 P&G Will Crest Again By Charles L. Decker, author of "Winning With the P&G 99: 99 Principles and Practices of Procter & Gamble's Success" (Pocket Books, 1998). Procter & Gamble blundered big time this week -- but then Wall Street blundered in turn by ignoring P&G's solid fundamentals. To paraphrase "Cool Hand Luke," P&G suffers from a failure to communicate. The company lost about a third of its value -- $36 billion -- and sent the rest of the market into freefall when CEO Durk Jager had to acknowledge that his third-quarter earnings would be up to 11% below the prior year's -- rather than the 7% increase the company had very recently promised. P&G has a long history of distancing itself from Wall Street. In fact, the company was delisted from the New York Stock Exchange in the early 1900s when it announced, "It is the opinion of the directors that the best interests of the Company will be best served by not giving out published statements. The earnings of the past year were in excess of the 12% dividend on the stock. If you apply in person at the office of the company, you will be given more information if you desire." P&G stuck with that policy for 26 years before relenting. It's not that the company's executives don't care about their stock price. After all, 25% of the stock is owned by P&G employees. But P&G approaches its business with a very long-term view that stands in contrast to Wall Street's more short-term outlook. But while weak on communicating, the company does have other strengths that have been forgotten in recent days. For starters, P&G invests heavily in the pursuit of innovation -- its research-and-development budget is more than $1 billion. It has 7,000 scientists working in 17 research centers around the world. Major breakthroughs have sustained its long-term growth. P&G invented the synthetic heavy-duty detergent and rode Tide through the '50s; it invented fluoride toothpaste and grew with Crest through the '60s; new paper-making technology resulted in the success of Pampers starting in the '70s. Then it acquired Richardson-Vicks, reformulated Pantene with a shampoo-and-conditioner formula and made it a global megabrand in the '80s and '90s. The fat substitute Olestra was the next hoped-for breakthrough product, but it hasn't worked out. Yet. P&G also believes in product quality. One of the reasons given for its recent problems is its refusal to get into the lower-quality, lower-cost private-label business. That just goes against the grain. P&G believes that the consumer will reward even minor product advantages, and it will not launch a brand if it does not have a competitive advantage. Then it will continually improve its products and make every effort to maintain that advantage. Tide, for example, has been improved more than 70 times over the years. P&G's third major strength is its belief in branding. The company knows that consumers buy products but choose brands. As fanatical as P&G is about product performance, it knows that consumers have overall positive and negative feelings that go well beyond product performance. In fact the entire company is organized around brand management, a system designed to establish and build relationships between its brands and consumers. Those three fundamentals -- innovation, quality and branding -- are deeply ingrained in P&G's corporate culture. And, contrary to the views of Wall Street naysayers, they will sustain the company over time. It's a safe bet that P&G will develop major new products to feed its long-term growth, particularly in the dynamic food and pharmaceutical segments. Of course, given how big the company's sales are ($38 billion), it's tough for even a successful new product -- like Swiffer, a dust-cleaning mop -- to add more than a percentage point or two to revenues. So Durk Jager has been right to pursue growth through acquisitions. His runs at Gillette and American Home Products didn't work out, but P&G should continue looking for other takeover targets where their managers can improve performance. P&G might have a communication problem. It might even be accused of not being sufficiently focused on short-term revenues and profits. But that's not what the company is all about, and it doesn't deserve to lose a third of its value because of it. P&G is all about manufacturing, marketing, and branding innovative products. Too bad Wall Street has lost sight of those solid virtues in its pursuit of sexy dot-coms.