Proctor & Gamble (PG) 10.6.09

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Equity Research

Barclays Capital does and seeks to do business with companies covered in its research reports. As a result, investors should beaware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.

PLEASE SEE ANALYST(S) CERTIFICATION(S) ON PAGE 2 AND IMPORTANT DISCLOSURES BEGINNINGON PAGE 4

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October 06, 2009

Procter & Gamble

(PG - US$ 56.75) 1-Overweight

Change of Price Target

Reclassifying to GAAP, Raising PT

Investment Conclusion

We have reclassified our FY10 EPS estimates toGAAP from pro-forma (excluding an all-in one-timegain of $0.48/share from the sale of Pharma).There is no change to our core calendar 2010

EPS estimate of $3.75, which using a 17x multiple(a 15% premium to where the S&P 500 is currentlytrading), gets us to our new $64 price target. Our previous $60 price target implied a 16x multiple on

the same $3.75 calendar 2010 EPS estimate.

Summary

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This morning, the Barclays Capital Consumer Team published its 3Q09 Earnings Preview.

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Please see our "All Consumer" EPS Preview for more on our expectations heading into 3Q09 for the entire staples universe (Household & PersonalCare, Beverage & Tobacco, and Packaged Food).

United States of AmericaConsumer Cosmetics; Household & Personal Care

Reuters PGBloomberg PGADR

EPS (US$)

(FY Jun)

2009 2010 2011 % Change

ActualOld New St. Est.Old New St. Est.2010 20111Q

N/A 0.95E 0.99E 0.97E N/A N/A 1.05E N/A N/A

2Q

N/A 0.92E 1.36E 1.40E N/A N/A 1.07E N/A N/A

3Q

N/A 0.87E 0.87E 0.87E N/A N/A 0.98E N/A N/A

4Q

N/A 0.87E 0.86E 0.85E N/A N/A 0.94E N/A N/A

Year

N/A 3.61E 4.09E 4.09E 3.93E 3.93E 4.00E N/A -4%

P/E

13.9 14.4

Market Data

Market Cap (Mil.) 175738Dividend Yield 3.1752 Week Range 71.94 - 43.93

Financial Summary

Revenue TTM (Mil.) 79473.0

Stock Overview

PROCTER & GAMBLE - 10/ 5/ 2009

Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oc

Source: LehmanLive

4551576369Volume50M

Stock Rating Target Price

New: 1-Overweight New: US$ 64.00Old: 1-Overweight Old: US$ 60.00

Sector View:

1-Positive

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Equity Research

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10/29/09: The Procter & Gamble Company

Current Fiscal Quarter: 1Q10

TickerPG

EPS OutlookBCConsensusComments

Last Price$56.75Sept 09A$1.03$1.03

Our GAAP F1Q10 EPS estimate includes

Stock Rating1-OverweightSept 10E$0.99$0.97

a $0.04/share 1x gain from the sale of the

Sector Rating1-PositiveYoY % Change-4%-6%

Japanese Actonel business. Our pro forma

Favorites List#3

$0.95 implies -6% core EPS decline YoY

Reporting Date10/29/09FY09A$4.26$4.26Reporting TimeBMOFY10E$4.09$4.09

Our GAAP FY10 EPS estimate includes

Conf. Call Time8:30 AMYoY % Change-4%-4%

a total $0.48/share 1x gain from the sale

Dial-In (US)-

of Pharma. Our pro forma estimate of

Passcode-FY11E$3.93$4.00

$3.61 implies 1% core EPS growth YoY

Websitewww.pg.comYoY % Change-4%-2%

Source: Company Documents, Barclays Capital Estimates, Reuters, and FirstCall

P&G has already indicated that we should not expect any sequential rebound in sales growth or reversal of core EBIT trends in F1Q10, sothis earnings season we will be most interested in hearing more details around FY10 investment plans and any early read on how tacticalprice adjustments and new product launches are contributing to volume recovery. We have assumed -1% organic sales growth in F1Q, withweak volume trends (-2.5%), a deceleration in pricing (+2.5%), and negative mix (-1%). Including a -4% FX headwind and assuming thatintersegment sales stay at F4Q levels, we have modeled for a -5% total company sales decline. Our $0.99 GAAP EPS estimate includes a+$0.04/share one-time gain from the July sale of the Japanese Actonel business and implies a -6% core EPS decline.With regard to sales, the biggest question for us is to what degree will volumes rebound as the company increases its promotional spendingand selectively tweaks down pricing in select categories/markets where the gap widened too much over the last year. In terms of specificsegment highlights, we have modeled for modest -LSD organic revenue declines in almost every segment except Baby & Family, which hasenjoyed positive albeit decelerating momentum through the recession (boosted in part by innovation like Pampers Simply Dry in Europe).We have modeled for the worst performance to be in Grooming (-5% organic), which given the high ASPs in Blades & Razors makes thecategory vulnerable to retailer destocking and changes in consumption trends. From a sentiment perspective, we think improvement inFabric & Home trends (especially comments on Tide) would be welcomed by the Street.In terms of profitability, the residual benefit from pricing and ongoing cost savings should fuel gross margin expansion in a moderatingcommodity cost environment (we have modeled for +70 bps). With regard to operating margins (-20 bps YoY), we have assumed anyoverhead leverage from P&G’s acceleration in productivity work is more than offset by the step-up in investment spending and promotions.We expect any additional P&L flexibility will fund white space expansion efforts versus drop to the bottom line, so any benefit from theprogressively more favorable FX trends through the quarter will likely be absorbed.

What to do with the stock.

P&G’s underperformance on the top line versus the peer group over the last few quarters (and likely for theremainder of calendar 2009) has shown that there are clear opportunities to strengthen underlying business mix. To that end, we areencouraged by the company’s new campaign to more aggressively tap into white space opportunities, and while it remains early days andwe expect to see 1-2 more bumpy quarters before the top line normalizes, we think the groundwork is being laid for a meaningfulimprovement in P&G’s fundamentals (potentially including the realization of scale advantages that have proven elusive). After eightquarters of delivering disappointing results, P&G will likely reach the turning point in F1Q10 where it can begin to meet (and over time beat)expectations for organic sales and core EBIT growth, in our view.

Analyst Certification:

I, Lauren R. Lieberman, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.

Equity Research

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Company Description:

With annual sales approaching $80 billion, Procter & Gamble (Ticker - PG) is the world's largest manufacturer of household and personalcare products. P&G generates 50% of total sales from North America, 35% from Europe, 10% from Asia, and 5% from Latin America. Thecompany's biggest divisions are Beauty (30% of total sales), Fabric & Home Care (25%), Baby & Family Care (17%), and Health Care(12%); the remaining 16% of sales are split evenly between Snacks & Pet Health, Blades & Razors, and Batteries & Braun. Some of P&G'smost familiar brands are: Pampers, Charmin, Bounty, Olay, Crest, Pantene, Clairol, Downy, Tide, Ariel, Head & Shoulders, Gillette, Braun,and Duracell.

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