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As P&G CEO looks abroad, Home Depot cuts costs

Newscom

(Read caption) Home Depot CEO Frank Blake toured one of his company's Atlanta stores with chief financial officer Carol Tome in April. He's emphasizing cost cuts and customer focus.

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Two leading companies. Two strategies for coping with a slow-growth US economy: overseas expansion versus austerity.

Procter & Gamble, the 172-year-old consumer-products giant, is talking about expanding into emerging markets. On Wednesday, it named 29-year P&G veteran Robert McDonald to be its CEO to lead that charge.

On the same day, home-improvement giant Home Depot forecast that its 2009 profits would decline less than it suggested a month ago. The reason wasn't increased sales – those are still expected to fall 9 percent – but better control of expenses. Bloomberg reports:

The retailer, led by Chief Executive Officer Frank Blake, has reduced expenses, shuttered its Expo design chain and frozen 2009 base salaries for officers as declining housing starts depress demand for home improvements.
“Our economic engine is no longer driven by new square footage,” Blake told analysts on a conference call today. “Instead it is driven by discipline, capital allocation and productivity and efficiencies within our existing stores.”

P&G is expected to look toward Asia and other growing markets because Mr. McDonald, who takes over from CEO A.G. Lafley July 1, has talked in recent months about the need to expand. AP reports (via The New York Times):

Mr. McDonald has said that P&G’s fastest growth is coming from emerging markets, and that the company will aggressively step up its presence in the developing world, building new plants in countries as far-flung as Pakistan and Nigeria. He has said that P&G, whose sales and earnings growth have fallen during the recession, can more than double its annual sales, to $175 billion a year, over the next 15 years by increasing its reach into countries like India, China and Brazil.
“There’s no question that the basic demographics are going to take the center of gravity of our business to Asia, to Africa — where the people are, where the babies are being born,” Mr. McDonald said in an interview last year.

Which strategy fits best with the realities of the new economy? Wall Street leaned toward austerity Wednesday.

Halfway through the trading day on the New York Stock Exchange, P&G was down 15 cents (0.3 percent) while Home Depot was up 35 cents (1.4 percent).

But it will take years to tell who took the better path – or indeed, if both were right, given their circumstances.

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