Change is stressful, and never more so when it involves laundry detergent.
RBC Capital Market analyst Jason Gere doesn’t like some of the changes that consumer products giant Procter & Gamble (PG) is making to try to jumpstart earnings growth. The company is making large cost cuts and focusing on its 40 largest and most profitable brands.
“Too much change going on leaves us with less conviction that PG can execute on plan,” Gere wrote.
P&G lowered its guidance for the current quarter last week, sending shares lower. Clearly, P&G is in a tough spot now, as it tries to sell higher-priced products to cash-strapped consumers in developed economies. But its attempts to deal with that challenge in the past two years haven’t panned out, and Gere isn’t willing to “give management the benefit of the doubt.”
Consumers are trading down, and the company may have to lower prices to grab market share back.
“With a portfolio skewed towards the premium tier, the macro environment (and FX headwinds) will continue to weigh on PG�s ability to grow the top line, especially while also taking action to “ensure competitive pricing across price tiers� to prevent lost share due to price gaps. Though PG will begin to have cost savings at its back, we fear the focus is shifting towards price investment, which has the potential to considerably dip into the anticipated margin flexibility generated by savings initiatives.”
Gere lowered his rating to Sector Perform from Outperform. He took his price target down to $64 from $70.
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