Procter & Gamble Co Chief Executive AG Lafley is spending US$12 billion to expand the 166-year-old company's beauty-products business.
That investment by the largest US household goods maker so far hasn't done much to help earnings, which the company will report Monday. P&G forecast third-quarter profit, excluding some costs, will rise about 14 percent. Any gains will come from job cuts and increased promotions of items such as Pampers diapers and Tide laundry detergent, investors said.
Lafley last month agreed to pay US$6.9 billion for hair-products maker Wella AG, after spending US$4.95 billion two years ago on hair-coloring maker Clairol.
He is counting on revved-up growth from both businesses in the coming decade to help take customers from industry leader L'Oreal SA of France. He says he doesn't expect instant results.
"We're thinking about building a beauty-care and personal-care business that will be a leading business in 2025," Lafley said in an interview in Geneva on April 7.
Investors and analysts say Lafley's ambitions are fine; they just are wary of his methods for achieving those goals.
"His desire is to have a higher-margin, more rapidly growing business," said Daniel Peris, an analyst with Federated Investors, which owns about 450,000 P&G shares. "I'm very suspect of a business that grows through acquisition. It allows you to mask a lack of internal growth."
Shares of P&G fell US$0.73 to US$89.14 at 4:16pm in New York Stock Exchange composite trading. The stock has gained less than 0.5 percent in the past year, the second-best performance among 30 stocks in the Dow Jones Industrial Average, which fell 17 percent.
Net income for the quarter, excluding restructuring costs, probably rose to US$0.96 a share, according to a survey of analysts by Thomson Financial. P&G reported net income of US$1.04 billion, or US$0.74, on sales of US$9.9 billion a year earlier. Sales in the latest period rose as much as 9 percent, led by Crest toothpaste and Olay skin cream.
The Wella purchase, which the company expects to complete by September, will boost beauty-products sales to more than a quarter of P&G's revenue, from 18 percent in 2001. The company entered the business in 1985 with the acquisition of Richardson-Vicks, which included Pantene shampoo and Olay skin creams, which have grown to about US$1 billion in annual sales each.
Investors say they have reason to be patient. Earnings have risen more than originally forecast for the past two years and sales are rising in excess of Lafley's target for gains of as much as 6 percent.
He has eliminated more than 16,000 jobs over the past three years to reduce costs.
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