Restructing Post Mortem
When an iconic company announces a major restructuring, investors need to ask "what went wrong," Cramer told viewers, as he examined the plight of the iconic consumer packaged goods company, Procter & Gamble (PG).
Despite increasing revenues by 5% over the past few years, Procter has been unable to boost earnings per share growth, causing the company to announce a major restructuring effort that will trim over 5,600 jobs and take $1 billion out of the company's marketing efforts. But will these efforts be enough to turn the consumer giant around? Cramer said probably not.
Cramer explained that the Procter of today is no longer the best of breed giant it once was. He said there is no culture of cost-cutting at the company, calling into question whether it can deliver on its promises.But the real issue for Procter is that of the entire consumer packaged goods sector, which has been in a tailspin as birth rates in the U.S. fall and the group sees increased competition from private label products along with higher commodity prices. In a perfect world, Procter would simply raise prices to offset rising costs, said Cramer, but with so many shoppers sticking with private label alternatives, raising prices is no longer an option. He said the same sentiments can be found on the conference calls of Kimberly-Clark (KMB), Clorox (CLX) and even General Mills (GIS). Cramer also called into question Procter's decision to trim its marketing efforts. Marketing differentiation is one of the few things branded products have going for them, he said, cutting back those efforts could have serious consequences. Cramer said that's why he's buying Kellogg's (K) for his Action Alerts PLUS portfolio. He said Kellogg's acquisition of Pringles, from Procter, is exactly what a company should be doing to reinvigorate its growth. In the case of Kellogg's, Cramer said the estimates are too low, the exact opposite of the estimates for Procter.