P&G Cuts Jobs & May Not Be Done

The world’s leading manufacturer of consumer packaged foods, Procter & Gamble Company (PG - Analyst Report) has announced that it will cut cost by way of reducing its workforce. To achieve this end the retail giant has decided to slice off 10 to 15% of the senior managerial level.

The company has also revealed that there is possibility of further retrenchment in the near future. In August 2011, management revealed that the company needed to get costs under control, and because it also plans to expand overseas, the downsizing in the U.S. was inevitable.

P&G slashed its number of group presidents and vice presidents by 15% and directors by 10%. Management also revealed that future cost cut programs could include closure of offices, factories and research facilities.

Procter & Gamble Co. reported modest results for the fourth quarter of 2011. Net earnings from continuing operations were 84 cents a share, up 18.0% year-over-year.

Earnings for the full year 2011 went up 11% year over year. The full-year earnings matched Zacks Consensus Estimate.

P&G’s net sales advanced marginally by 10% to $20.9 billion in the fourth-quarter fiscal 2011. Gross margin for the quarter declined 120 basis points primarily attributable to higher commodity costs and unfavorable product mix.

For the year, gross margin contracted 140 basis points to 50.6 percent of net sales due to higher commodity costs and unfavorable product mix, partially offset by manufacturing cost savings. The company needs to reduce cost by an additional $2 billion to $4 billion in order to remain afloat in a post-slump period.

P&G is among many companies that are taking refuge of retrenchment to cope with the recession in the global economy followed by a slow recovery. Swiss bank UBS AG (UBS - Snapshot Report) announced that it is slashing 3,500 jobs worldwide as part of an effort to save $2.5 billion annually by the end of 2013. Lloyds Banking Group Plc. America (LYG - Snapshot Report) cut 570 posts across the UK, with job losses expected at its wholesale, retail, insurance and adopted a massive restructuring plan, including changes in its eight brands, potential factory closures and other restructuring moves as it fights to avoid bankruptcy protection.

We are encouraged by the company’s continual expansion of its portfolio, both through internal development and acquisition. However, Procter and Gamble currently is facing high commodity cost inflation and severe competition from companies like Kimberly-Clark Corporation (KMB - Analyst Report) and Johnson & Johnson (JNJ - Analyst Report) in the Western European markets in both the blade and battery businesses.

P&G holds a Zacks #3 Rank, translating into a short-term Hold rating.

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