Friday, May 1, 2009
Big Companies Start Feeling the Pinch - P&G is no exception
While reading articles about the current economic situation around the world I came across a lot of articles listing companies which were said to be recession proof as the products they sold have become part of everybody everyday life and hence it was impossible to live without. One of these "recession proof" companies was said to be Procter & Gamble
However this week the 3rd quarter results were release and to everybody's surprise even this P&G saw a decline in it's profits. This consumer products giant has turned a profit of $2.6 billion during the quarter, but this represented a decline of 4 percent compared to last year's figures. Although this could be seen as quite negative, the power of the brands that P&G owns has made it possible for the company to beat Wall Street's expectations in terms of profitability. Products such as Pampers, Tide, Crest and Gilette have become an essential part of most people's life and although going through a difficult economic people still find it difficult to replace these products with "comparably similar" substitute products.
P&G's products have a global reach as they are available in more than 150 countries. saw its net sales drop across all of its product categories during the quarter. The reason for a drop in profits has been attributed mainly to the strong dollar. Its strength meant that when P&G converts currency from products sold overseas, it gets fewer dollars in exchange. This has cut into P&G's profits. Coupled with this, there's the global slowdown and also another strange fact... P&G raised prices on many of its products, to make up for the impact of the strong dollar.
The increase in prices, although did not significantly effect the sales to consumers due to the relative inelastic nature of demand for P&G's brands, this has affected the orders made by retailers and distributors. These are delay ordering new shipments to cuts the cost of stocking up as they reduce their reorder levels as everyone's trying to operate with less stock.
Although P&G have reduced their full year forecasts, it is still believe that the strong brands it owns will shield this company from the full effect of the recession while at the same time placing it in a good position to return to growth once the economy start growing again.