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At the company’s annual meeting held recently, the Chairman, President and Chief Executive Officer of consumer products giant Procter & Gamble (PG - Analyst Report) – Bob McDonald – declared that the company is operating according to its growth and productivity plan in order to achieve its long-term targets.

In the long term, the company aims to increase its organic sales by 1–2% ahead of the market, achieve core earnings growth in high single to low double digits and generate free cash flow productivity (ratio of free cash flow to net earnings) of over 90%.

Procter & Gamble is known for its ability to understand consumer needs and innovate accordingly to create whole new brands and categories. The CEO confirmed that the company continues to focus on innovation and has launched several new products under the brands, Olay Regenerist, Pantene, Head & Shoulders and others.

The company also stated that it intends to deploy its resources toward the development of its top 40 categories, 20 top innovations and 10 developing markets. Of the top 40 performing categories, which generate highest annual revenue and earnings, the company has 20 in Household Care and 20 in Beauty & Grooming.

The 20 top innovations have stronger growth potential than the rest of the product portfolio. The company believes that consistent new product innovations, supported by strong marketing and efficient distribution channel, will deliver strong results over the long term.

The company also intends to continue its growth momentum in the top 10 developing markets, in order to drive profit in the short and long term.  The company plans to increase sales in these markets by focusing on affordability, accessibility and brand awareness.

One of the company’s long-term strategies includes a five year cost savings initiative of $10 billion announced in February 2012. The company intends to reduce its overhead spending and marketing costs and generate savings through efficiency. The plan aims to reduce spending across all areas including a workforce reduction of 5,700 by the end of fiscal 2013.

We appreciate the company’s strategy of product innovation and its strong market share. However, we are concerned about the company’s performance in the near future, owing to high commodity costs and sluggish growth in the developed nations due to weak economic conditions.

We currently have a ‘Neutral’ recommendation on Procter & Gamble. The stock carries a Zacks #2 Rank that translates into a short-term ‘Buy’ rating. On the other hand, we have a ‘Neutral’ recommendation on Kimberly-Clark Corporation (KMB - Analyst Report), one of P&G's peers. The stock carries a Zacks #2 Rank that translates into a short-term ‘Buy’ rating.

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