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By Jeremy Glaser | 08-03-2010 03:06 PM

P&G Ready to Meet Consumers Wherever They Are

Morningstar's Lauren DeSanto thinks that P&G's scale and investment in product development will allow it to serve consumers regardless of the economic backdrop.

Securities mentioned in this video
PG Procter & Gamble Co
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Jeremy Glaser: For Morningstar.com, I am Jeremy Glaser. Procter & Gamble reported mixed quarterly results today. I am here with Equity Analyst Lauren DeSanto to take a deeper look.

Lauren, thanks for talking with me today.

Lauren DeSanto: Thanks for having me, Jeremy.

Glaser: So, can you give us just the bird's eye view of what this quarter looked like for Procter & Gamble and what went wrong for them?

DeSanto: Well, I would say it was a quarter where a lot of investment and advertising support really hurt them from an earnings standpoint. It wasn't unexpected. They have had a number of product launches in the pipeline for a long time. And so, it was pronounced in this quarter. So operating margins declined significantly. I think it was just a bit of a shock to a lot of people by how much.

So, while you had, I think, relatively healthy volume growth, the top line wasn't as strong as some would like because of also promotional activity at the shelf. Gross margins held fairly steady. But it was the operating income line that kind of just was a shocker.

Glaser: So, certainly, we've been worried about the consumer for a long time now, and even the drug stores deciding if they are going to buy Tide or buy a private label detergent, is that something that we got any insight to in this quarter with Procter & Gamble?

DeSanto: Well, there was a lot of discussion about private label. I think private label is a serious problem in certain categories and in certain of P&G's categories. But this is a company that's investing in brands for the long term, and I think they are able to come up with new products that are compelling for consumers, that consumers will want to buy regardless of the times.

So the question is, can they make them profitable? How profitable can they make them? So they have new Bounty basics, Charmin basics, they have these new value proposition products, new value offerings, and P&G is really working to make sure that they have something at the value end, that they have something at the premium end, no matter where the consumer is with their spending that they are able to meet them there.

Glaser: Are investors going to have to maybe accept lower margins from Procter & Gamble and other consumer packaged goods products going forward?

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