Washday Blues

For decade after decade Procter & Gamble, the household-products giant, has never failed to show financial results as bright as the clothes in its detergent ads. But when the Cincinnati-based company hung out its latest profit statement last week, there was dirty laundry on the line. P & G had suffered its first annual earnings decline since 1952, posting fiscal 1985 profits of $635 million, down 29% from the previous year.

The traditionally aggressive P & G is paying the price for a spell of complacency during which hardworking competitors scrubbed away at the dominance of its flagship brands. Crest's share of the toothpaste business fell from 40% in 1977 to a current 29%, partly because P & G was slow to introduce the popular new pump containers. The market share of Pampers disposable diapers fell from 55% to 29% in the past five years. One reason: heightened competition from Kimberly-Clark's formfitting Huggies brand.

Hoping to emerge from its painful spin cycle, P & G has embarked on an ambitious spending campaign to upgrade current products and launch new ones. The company is laying out $500 million to retool its Pampers plants for production of diapers that are more leak resistant. To meet rising demand for bottled detergents, P & G introduced a liquid version of its top-selling Tide last November with a reported $50 million promotion campaign. The heavy spending, though, has aggravated P & G's profit woes.

P & G has had some victories on the new-product front. Its low-priced Ivory brand shampoo, which debuted last year, quickly snared an excellent 8% of the market. But several of P & G's promising new brands have been disappointments. Citrus Hill orange juice has gone flat despite its fast start and heavy advertising. P & G's hopes for a big hit with Duncan Hines cookies (crispy outside, chewy inside) crumbled because the company failed to gear up its baking capacity quickly enough to meet competition from other new brands, including Nabisco's Almost Home and Frito Lay's Grand-Ma's. Encaprin, P & G's aspirin in capsule form, has suffered from the introduction of new ibuprofen-based painkillers such as Advil and Nuprin.

P & G officials are confident that their earnings setback is only temporary, and Wall Street seems to agree. The company's stock was relatively stable last week, closing at 57 3/8, down 3/8. Perhaps investors are more impressed by 33 years of rising profits than one uncharacteristic dip.