Cost cutting sees P&G upgraded by analyst

19-Apr-2009 - Last updated on 20-Apr-2009 at 15:42 GMT

Procter & Gamble looks well placed to ride the economic storm as a leading financial analyst upgrades the company’s rating on the back of cost cutting measures.

Analyst William Chappell of SunTrust Robinson Humphrey upgraded his rating for the company from 'neutral' to 'buy', stating his belief that the current round of cost cutting measures should allow for some benefits in the financial year 2010.

The decision follows P&G’s announcement last week that it would raise its quarterly dividend for share holders by 10 percent, giving the company stock yields of 3.6 percent.

Recovery is in sight

The figure illustrates the fact that the company is recovering some of the ground it lost during the September-October stock market fall when share prices plummeted for nearly all consumer goods companies around the world.

Chappell pointed out that P&G is likely to be challenged during the next few quarters, mainly due to recessionary constraints in the developing markets and North America.

Further to this, he stated his belief that on top of increased margins from cost saving initiatives being currently implemented, he also thinks that better currency exchange rates, together with lower commodity and marketing costs.

Sales fell more than 3 percent in Q2

During the second quarter ending in December 2008, the company announced its first quarterly decline in years, as sales fell 3.2 per cent to reach $20.37bn on the back of a strong dollar and declining consumer demand.

As a result P&G is conservative about its prospects for the rest of the year and recently cut its sales forecast for the fiscal year ending in June to between 2 and 5 percent.

Honing in on beauty, sales fell 4 percent $4.9bn for the quarter with prestige fragrances suffering most in the economic decline and hair care coming out looking best.

Value of promotions focused on price

Commenting on strategy in the recession after announcing the second quarter results, Lafley said promotions that emphasize value would help the company increase market share.

In personal care, Gillette Fusion commercials say the blades deliver a comfortable shave for only $1 a week and the early signs from the accounts suggest that the focus on value for money is paying dividends.

The company underlined the fact that the Fusion brand achieved double-digit sales growth in the quarterly sales figures.