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WALL STREET, CALIFORNIA | Stock Exchange: James Peltz
and Michael Hiltzik

Dog Food for Thought at P&G; the Pixar Roller-Coaster


Stock Exchange lets readers listen in as Times staff writers James Peltz and Michael Hiltzik debate the merits of individual stocks.

Procter & Gamble (PG)

Jim: Up first today is, well, a corporate institution, right, Mike? Sometimes you wonder how we would all live without Procter & Gamble, given all the consumer goods it makes. Which, by the way, generate $38 billion in annual sales.

Mike: Yeah, sometimes I think I have an all-Procter & Gamble medicine chest in my house. Should we name a couple of their products?

Jim: Tide and Cheer detergents.

Mike: Crest toothpaste, and Ivory and Zest soaps.

Jim: Head & Shoulders shampoo, Pampers baby diapers, Folger's coffee.

Mike: Pringles, Jif peanut butter.

Jim: Noxzema and Cover Girl cosmetics.

Mike: Stop! You get the idea. P&G is a great company and is always there when you need it. And now, if you own a dog, it'll be there for you too.

Jim: You're referring to its recent plan to buy Iams, the pet-food company, which we'll get to in a moment. First, though, P&G--like so many others in the food and consumer-products fields--has had some rough sledding in the 1990s trying to find consistent growth.

Mike: Like Coca-Cola, or Gillette.

Jim: Especially Gillette.

Mike: Don't remind me.

Jim: In P&G's case, it entered the 1990s as a sleepy, bloated giant with dominant shares in many of its markets. Since them, it's undergone two enormous restructurings.

Mike: So now it's a sleepy svelte giant.

Jim: You're probably right. Meantime, these restructurings have meant laying off thousands of people and closing dozens of plants, to make P&G more streamlined.

Mike: Yes, when a company like Procter & Gamble restructures, there's blood all over the tarmac.

Jim: It's notable, though, that the first restructuring was aimed at helping P&G cut prices to stave off what was becoming a wave of cheaper, private-label brands that the supermarkets were introducing. Now, the latest one is intended to make P&G more nimble in rolling out new products that carry higher prices and therefore higher profit margins. Whether it will work is anyone's guess.

Mike: Fine, but the real problem at P&G is growing the top line, meaning sales, or the top line you see in an annual report. The company did announce last week that sales rose 4.3% in its most recent fiscal quarter from a year earlier, which is an improvement for P&G. But there's a limit to what you can do to sell more Tide. I mean, the 15th version of the "new and improved" Tide only goes so far.

Jim: And the same thing goes for everything P&G sells, all of which face enormous competition.

Mike: Exactly. So Procter & Gamble also is doing something new itself, and that's buying Iams, a leading marketer of premium pet food. Now, this is going to be a very interesting challenge, and a signpost for the way P&G's new chief executive, a Dutchman named Durk Jager, is going to function.

Jim: Well, Iams is costing the company $2 billion, and it's the biggest acquisition in P&G's long history.

Mike: It is a big move, all right, but Iams is not a major pet-food label in the broad sense. So P&G has to figure out how to move Iams from its regular outlets, like veterinarians' offices and specialty stores, into the mass-market retailers. And that begs the question whether Iams will continue selling as well.

Jim: As for P&G's stock--a component of the Dow Jones industrial average, by the way--it's done pretty well in the '90s despite all the turmoil. It basically kept pace with the bellwether Standard & Poor's 500 index for much of the time, and it's gained about 21% in the last 12 months to above $105 a share.

Mike: My take? I see the stock going into a flat period.

Jim: So you wouldn't buy it?

Mike: No.

Jim: Well, it bothers me that the stock sells for a fairly pricey 32 times P&G's expected earnings per share for its fiscal year ending next June.

Mike: Right, for a company's whose sales have been growing just about 3% a year, or less than inflation.

Jim: I know. But I'd still buy the stock as a long-term investment.

Mike: You sound more like a venture capitalist every time we chat.

Jim: Despite its upheaval and its fierce competition, P&G is still a leading player all over the globe. Its stock also has a long-term history of steady gains in good times and bad, at least as a market performer. And I think P&G still has a few tricks up its sleeve, the Iams deal being only the latest one. So I'd still buy the stock as a long-term holding, though you might not make any money overnight.

Mike: Your call. But if you take a bath with Procter & Gamble, at least they've got plenty of products for cleaning up your mess.

Pixar Animation Studios (PIXR)

Mike: I want to say right off, Jim, that I would be delighted to spend $7.50 for a ticket to any movie Pixar puts out, and to spend $20 or $25 on any videotape of those movies. This is the studio, of course, that's produced two animated blockbusters.

Jim: "Toy Story" and "A Bug's Life."

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