MEDIA WATCH: P&G surprise warning cited for extent of stock drop

USA Today (March 8) describes consumer products maker Procter & Gamble as ’the company whose very name is synonymous with product innovation ... whose brand managers are the envy of the marketing world.’ How could it be then that the company has lost dollars 77 billion in market capitalization, nearly half what it held in mid-January? On March 6, the company issued a warning that its quarterly profits would be about half what Wall Street was expecting. The resulting freefall of the company’s stock prompted a discussion in the media of what went wrong.

USA Today (March 8) describes consumer products maker Procter & Gamble as ’the company whose very name is synonymous with product innovation ... whose brand managers are the envy of the marketing world.’ How could it be then that the company has lost dollars 77 billion in market capitalization, nearly half what it held in mid-January? On March 6, the company issued a warning that its quarterly profits would be about half what Wall Street was expecting. The resulting freefall of the company’s stock prompted a discussion in the media of what went wrong.

USA Today (March 8) describes consumer products maker Procter &

Gamble as ’the company whose very name is synonymous with product

innovation ... whose brand managers are the envy of the marketing

world.’ How could it be then that the company has lost dollars 77

billion in market capitalization, nearly half what it held in

mid-January? On March 6, the company issued a warning that its quarterly

profits would be about half what Wall Street was expecting. The

resulting freefall of the company’s stock prompted a discussion in the

media of what went wrong.



CARMA’s review of coverage following the earnings warning found that

Procter & Gamble’s biggest mistake may have been in catching Wall Street

by surprise. Not only did P&G commit ’the unpardonable sin of

disappointing the market with weak earnings’ (Kansas City Star, March

8), the announcement was seemingly made out of the blue.



Coverage often focused on P&G’s very recent assurances that everything

had been running smoothly, with stockbrokers and fund managers caught

off guard just days later by the surprise announcement. Many expressed

their displeasure at the way P&G handled the situation, portraying the

company as having misled them. ’The damning part about it ... is that

(P&G) was at the Merrill Lynch consumer conference last week and told

the audience the quarter was on track,’ voiced one fund manager (Los

Angeles Times, March 8).



The media also used the occasion to question the performance of P&G’s

management. Investors and analysts wondered why management did not

foresee the lower profits sooner. Several articles addressed relatively

new chairman and CEO Durk Jager’s restructuring of the company and

suggested that he was trying to take on too much too soon. An analyst

told CNNfn (March 7) that P&G may ’want to get a ship in tip-top shape

before you take it racing.’



Many articles also presented P&G’s poor stock performance within the

context of a broader flight away from consumer stocks of the old economy

and into growth-oriented technology stocks of the Internet economy.

Investors were described as impatient with value companies, especially

those with unpleasant surprises. The New York Times (March 8) wrote,

’The world has changed and companies have got to change. Some of these

companies think they still have months or years to respond to problems.

They don’t.’



Compounding the above factors was criticism that P&G’s explanations of

what went wrong and how it would right itself were unsatisfactory.



’For a company as sophisticated and far-reaching as Procter, you would

expect them to have a better handle on the business than they actually

do. The company has done an inadequate job, so far, of explaining how

you go from significantly disappointing earnings to positive ones’ (Wall

Street Journal, March 9).



The only possible bright side for P&G was a handful of reports that

stated that the sell-off had been too excessive and that the market had

overreacted.



Despite the appearance of such sentiments, only a few reports suggested

that the company’s stock is now undervalued and could be bought at a

bargain price.





- Evaluation and analysis by CARMA International. Media Watch can be

found at www.carma.com.



Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Register
Already registered?
Sign in