P&G to cut jobs, close plants

Wall Street is unimpressed with the restructuring, and company shares tumble on the news.

In an effort to loosen its stiff corporate culture and free more cash for product development, Procter & Gamble said Wednesday that it would cut 15,000 jobs worldwide _ or 13 percent of its work force _ close 10 plants and take nearly $2-billion in charges linked to the reorganization.

P&G, which makes such products as Tide detergent, Pampers diapers and Crest toothpaste, also said in a meeting with analysts and investors in New York Wednesday that its financial results for the current quarter would be flat and would improve only modestly the next quarter.

And the company acknowledged that it had been too ambitious in its 10-year goal to double revenue to $70-billion by 2005, all but admitting it would fall significantly short.

Durk I. Jager, the chief executive, nonetheless tried to assure analysts and investors that the reorganization would spur future growth and save about $900-million a year by 2004. The overview of what P&G calls "Organization 2005" provided the first detailed look at Jager's blueprint for growth since he was selected to lead P&G in January after 29 years with the company.

Investors typically cheer when a company announces plans to cut costs and promises huge savings. But P&G shareholders have heard all of this before and been disappointed when management did not deliver the lofty revenue gains and fatter profits it had promised.

This time, investors punished the company's stock, indicating their skepticism that the reorganization would bring about the 13 percent to 15 percent annual earnings growth that management now promises and signaling their disappointment with the less-than-impressive quarterly forecast. P&G shares declined $2.56\ Wednesday, or 2.7 percent, to $92.25.

"I think what we are seeing now in the reaction in the stock is people want to see results right now," said Mark Godfrey, a senior analyst with the Invesco Funds Group, which holds 1.6-million shares of P&G.

The mixed bag management presented Wednesday, with the warnings of a mediocre short-term performance but the carrot of a payoff later, failed to impress investors.

"Nobody was wowed by what they heard," said William Steele, a managing director of Banc of America Securities. "Quite honestly, the jury is still out on the company's ability to sustain long term a 13 percent growth rate."

To be sure, P&G's reorganization should make for a more efficient company. But six years ago, the company cut thousands of jobs, closed dozens of plants and took $1.5-billion in charges in what management called a strategy to refocus the business.

In recent years, though, P&G has been hurt by the collapse of some foreign economies, as well as the company's lethargic product-development cycle and sometimes slow response to consumer trends.

As part of the current reorganization, P&G will eliminate 15,000 jobs over the next six years, with 10,000 coming by the end of 2001. Only about 16 percent of the job cuts will be in North America, with most in Europe, the Middle East and Africa.

P&G did not disclose which plants it intends to close, but as with the job cuts, most or all are expected to be outside the United States. Of the $1.9-billion in after-tax charges related to the reorganization, about $400-million will be taken in the current quarter and about $1-billion over the next two fiscal years. The remainder will be taken by 2004.

"The cost of Organization 2005 is well justified by both the ongoing operational benefits of our new structure and the substantial financial benefits it will generate for our shareholders," Jager said. The plan, he added, "marks the most dramatic change to P&G's structure, work processes and culture in the company's history."

The plan calls for developing seven global business units focused on product segments such as hair care, laundry and feminine hygiene. It also shifts the company's focus from geographic expansion to faster, more innovative product development. And it ties executives' compensation more closely to innovation.

Indeed, if Jager succeeds in relaxing P&G's cumbersome corporate structure, it would represent a new era in the company's culture and perhaps again make P&G the undisputed leader in consumer products.

Still, the company has made some embarrassing missteps recently, as in its failure to swiftly respond to consumers' taste for new toothpaste flavors and formulas. P&G saw its share of the market tumble as Colgate-Palmolive and others lured once-loyal Crest users.

"Procter's Organization 2005 is more of an evolution than a revolution," said Wendy Nicholson of Salomon Smith Barney. "This is a six-year program, and investors need to be wary of exactly how long Procter might take to get this business where they want it to be."

Familiar products

The company sells about 300 brands in more than 140 nations, including:

Bounty

Charmin

Cheer

Clearasil

Clorox

Crest

Crisco

Folgers

Ivory

Max Factor

Noxema

Nyquil

Oil of Olay

Pampers

Pringles

Tampax

Vicks