Proctor and Gamble Shows How a Weak Dollar Benefits US Multinationals

From Bloomberg:

Procter & Gamble Co., the world’s largest consumer-products company, reported fourth-quarter profit that rose more than analysts estimated and said earnings may rise further as price increases and the dollar’s declines boost sales.

Chief Executive Officer A.J. Lafley’s strategy of raising prices on Cascade dishwashing detergent, Iams pet food and Gillette razors helped counter record costs for oil used in plastic packaging and pulp for Bounty paper towels and Charmin toilet paper. P&G said last month it plans to raise prices again in September on fabric, hair care, bar soaps and shaving products by as much as 16 percent. The increases will be the steepest in at least 18 months. P&G also intends to raise prices in China by an average of 3 percent, including a 20 percent increase for Pantene hair products.

More than half of P&G’s sales come from overseas and benefited from foreign currency gains against the dollar. The dollar’s decline helped revenue by increasing the value of overseas sales when converted to the U.S. currency. The dollar dropped 12 percent against a basket of foreign currencies during the quarter.

This is a great example of a multinational exploiting the weak dollar to do well. What are the factors in P&Gs success?

Foreign consumers, especially in China, have more disposable income.
A weaker dollar means prices abroad go down, in terms of stronger foreign currencies. NPR has an example of this, as quoted from the U. of Chicago’s John Huizinga:

“Suppose the dollar depreciates and instead of being $1 to the euro, it’s $2 to the euro. The price to Europeans went from two euros down to one. They think in euros and think, ‘Wow, I can now buy those widgets at half the price I used to.’ ”

P&G aggressively cut expenses.

Low costs and high volume of foreign sales = profit back home. Drug companies such as Wyeth and Pfizer are experiencing the same phenomenon, boosting their share value on Wall Street. Exporters in several other categories are also doing well.

What’s more, a weak dollar eventually stems trade deficits.

There is some good business news amidst the turmoil…

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  • A couple of additional factors in P&Gs success: products people want and valued brands. Those factors also explain why GM can’t duplicate what Lafley’s company is able to do, even with the fact that Buick is well-liked in China.

  • I recently watched A.G. Lafley, the CEO of Procter & Gamble being interviewed by Charlie Rose. Lafley said that management should treasure complaints from dissatisfied customers. He continued by explaining that in the case of Procter & Gamble negative feedback from customers is used to improve the products the company sells. This helps explain why P&G is doing well in this economy while other companies are faltering. Giving Core Customers exactly what they want in products or services almost guarantees that a company will build sustained, profitable growth.