The world’s leading consumer product maker, Procter & Gamble Company (PG - Analyst Report) has announced that it will slash over 4,000 non-manufacturing jobs during the current fiscal year. This declaration follows the already planned 1,600 job losses, which was announced by the company at the beginning of February 2012.
P&G anticipates that by trimming down 5, 700 jobs, it will save up to $10 billion of cost, including $1 billion in marketing costs and $3 billion in overhead costs, by the end of the fiscal year ending in June 2016.
Out of its 129,000 employees, the company employs about 57,000 people as non-manufacturing staff. The job cuts announced makes almost 10% of thiswork force. The process of retrenchment is scheduled to be completed by the end of the fiscal year ending June 2013. Most of the jobs would be eliminated through a voluntary early-retirement program.
P&G has not been able to please its investors lately because of delivering a disappointing second quarter 2012, with net earnings from continuing operations sliding 49.0% year over year to 57 cents per share. The results were also 47.22% below the analyst estimates. Profits were restricted on account of charges associated with the Appliances and Salon Professional businesses.
Last week, P&G finally managed to shed its Pringles potato chip business by striking a $2.7 billion deal with Kellogg Company (K - Analyst Report) after its earlier plan fell apart when Diamond Foods (DMND - Analyst Report), the original buyer, became embroiled in some accounting problems.
To accommodate the new sale out, the company also lowered its forecasts for the third-quarter 2012 net earnings from continuing operations and core earnings to be in the range of 89-95 cents per share compared to 91-97 cents per share, announced previously. However the analysts’ expected the third-quarter earnings to be around $1.05 per share.
The decision to retrench comes at a time when uncertain economy and high level of unemployment in the U.S. have induced the customers to spend cautiously. This gave rise to low sales in the U.S. and Europe. Moreover, high costs have brought the margins down.
P&G had to reverse some price rises, which were meant to help it to cope with higher materials costs after competitors did not follow suit and it twice delayed the launch of new Tide Pod detergent capsules because it could not match demand with its supplies.
However, the increasingly competitive emerging markets with the presence of stiff rivals like Colgate Company (CL - Analyst Report) and Unilever (UL - Analyst Report) has enabled P&G to bolster its presence in these promising areas. Although the company is cutting ranks in the U.S., P&G is hiring people in China where business is growing mid-double digits.
P&G has also announced plans to add around 20 manufacturing plants between 2010 and 2015 in countries like Brazil, China, South Africa, Romania and Poland. However, the company has no plans to open any plants in the U.S.
Currently P&G holds a Zacks #4 Rank (short-term Sell rating). On a long-term basis, we maintain a Neutral recommendation on the stock.