Procter & Gamble Caves In to the Recession

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Well, Fools, the moment that the recession inarguably got the best of Procter & Gamble (NYSE: PG  ) has finally arrived. After a couple of quarters of falling organic sales and volumes, the company is slashing prices across roughly 10% of its product portfolio.

As I see it, P&G had to do something relatively fast to shore up customer loyalty. In times of economic malaise, lower prices are usually the quickest route to that end. Markdowns on Cheer brand detergent and other products should, at the very least, bolster the company's image in the mind of the distressed consumer.

Of course, certain folks assert that Jane and Joe Shopper will automatically flock back to P&G's premium brands following the recession's demise. From that perspective, a discount-driven business boost right now is hardly worth the potentially lower margins. But if, like me, you suspect a long-term shift in consumer habits is under way, then P&G's decision is a prudent move to stabilize its customer base before those shoppers leave for good.

Let's be clear, though: This is a stopgap strategy. Lower prices may please customers, but in the absence of endlessly declining corporate costs, they don't drive long-term profit growth for shareholders. That task falls in large part to product innovation -- an area that P&G management had appeared to eschew in favor of buying up car washes and high-end shaving brands.

More recently, however, signs of a more focused approach are emerging. The now-expanded Tide Coldwater product line promises to help consumers save big bucks on the energy costs associated with warm- and hot-water washes. Also, to help consumers clean their clothing without getting cleaned out, the company is exploring a low-cost, no-frills version of Tide. Perhaps most convincingly, management forecast fiscal-2010 second-quarter organic sales growth at 1%-4%, versus the 1%-3% growth it previously estimated for the full fiscal year. Notice, though, that the bump up is at the high end only. Nonetheless, Mr. Market sent shares 4% higher on the news.

Yep, I know, P&G shares are trading at a wide discount to competitors Colgate-Palmolive (NYSE: CL  ) and Johnson & Johnson (NYSE: JNJ  ) . But P&G has stumbled badly. Moreover, consumer opinion of private-label goods is at a high, which in turn raises the threat of store brands offered by the likes of Wal-Mart (NYSE: WMT  ) , Costco (NYSE: COST  ) , and CVS Caremark (NYSE: CVS  ) .

That said, if you already own shares, or are thinking of buying, this could be a good time to review your choices in options. Whether your goal is to snag a lower buy-in price or generate income should the stock trade sideways for a spell, options could be the ticket to a more profitable near-term investment.

Don't know your puts from your covered calls? That's OK. Motley Fool Options advisor Jeff Fischer explains how to make money even in flat markets using options. And "flat" is exactly what P&G shares may be for quite some time.

Other decidedly Foolish and potentially profitable moves:

Costco is a Motley Fool Stock Advisor selection. Costco and Wal-Mart are Inside Value picks. Johnson & Johnson and Procter & Gamble are Income Investor picks. The Fool owns shares of Procter & Gamble and Costco. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Mike Pienciak does not own shares of any company mentioned. The Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 12, 2009, at 12:31 AM, Kensdumb wrote:

    Comment #1. Perhaps P & G should re-think its giving thousands of dollars to support "Gay Day" parades and other support for the homosexual agenda. As a normal heterosexual person I will give my purchasing support to other companies where possible. There are other better stocks to buy now than PG.

    Comment #2. At the head of this article Motley Fool has an advertisement from AARP stating that Obama's health care plan is not a gov't takeover of health care. Actually it would take over about 1/6 of the GDP of this nation. This (Obama care) is nothing more or less than pure old Socialism. I am not buying any stocks related to health care while this threat hangs over us. I have always counted on Motley Fool for good, honest, and insightful articles and advertisements. Perhaps Motley Fool should screen their advertisers better.

    Ken Marshall

  • Report this Comment On September 15, 2009, at 6:00 AM, investjen wrote:

    Based on recent visits to Target when hoards of college students were shopping, I'm sticking by P&G -- they were all stocking up on Pantene shampoos. Also, Oil of Olay middle-aged women's skin care consistently knocks more expensive lotions out of the ratings -- and that's something folks are NOT cutting back on, no matter what the analysts say!

  • Report this Comment On September 15, 2009, at 2:32 PM, mrevspara1 wrote:

    P&G has been in Income Investor recommendation for some time. Now we are being told that P&G might not be such a good idea. Huh???

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 982644, ~/Articles/ArticleHandler.aspx, 10/23/2016 8:01:30 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:01 PM
PG $84.33 Down -0.60 -0.71%
Procter and Gamble CAPS Rating: ****
CL $70.92 Down +0.00 +0.00%
Colgate-Palmolive CAPS Rating: ****
CVS $87.41 Up +0.11 +0.13%
CVS Health CAPS Rating: ****
JNJ $113.44 Down -1.43 -1.24%
Johnson and Johnso… CAPS Rating: ****
WMT $68.34 Down -0.39 -0.57%
Wal-Mart Stores CAPS Rating: ***