Consumer Nation

Tough Year Ahead for P&G? Stifel Thinks So


In the weak economy, consumer products companies have been innovating less, which makes each product introduction that much more critical. And that is probably even more true for companies known to be leaders in new product development.

Procter & Gamble has had a few stumbles with the introduction of its Tide Pods laundry product. Hailed as a "game-changer" in the laundry category, the product has been delayed due to manufacturing constraints and when it comes to market next month the launch will be a bit more muted than originally planned, with fewer promotions to support it until later this year.

Those who follow the company have been watching the situation closely as it is the fourth time P&G has suffered supply constraints in recent memory, according to Stifel Nicolaus analyst Mark Astrachan.

The delay also is one factor that could weigh on P&G's earnings this year. The three-chamber pods are priced at a 20 percent to 25 percent premium to base Tide, and were expected to eventually contribute about $2 billion to annual sales, assuming they sell as well as P&G's auto dishwasher pods.

But it will be interesting to see how receptive consumers are to trying Tide Pods, especially without much promotion until later in the year.

P&G is already dealing with currency and input pressure and it will need to guard against market share losses in the year-ahead. These were all factors Astrachan cited in downgrading P&G's stock to hold from buy Monday. The downgrade, which also knocks P&G off of the Stifel Income List, sent P&G shares lower.

The Cincinnati consumer products giant reports its fiscal second-quarter earnings on Friday, and Astrachan expects they will be in line with the company's expectations. However, he expects the rest of the year will be tougher.

Astrachan cut his estimate for P&G's fiscal 2012 to $4.04 a share from $4.19, and fiscal year 2013 to $4.37 a share from $4.52.

One big problem is that many of P&G's rivals have not followed its lead in raising prices in categories such as laundry and dish detergent, hair care and shaving. As a result, P&G is either treading water in these categories or it has lost market share to lower-priced rivals.

P&G is going to have to either step up promotional activity to offset these increases or cut prices outright, Astrachan suspects.

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