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P&G’s A.G. Lafley Stresses Productivity

To help the company reverse course, executive is pushing for all five business units, including beauty, to amplify their focus on profitability.

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When it comes to talking about Procter & Gamble Co.’s beauty business, A.G. Lafley isn’t inclined to use platitudes.

“It’s stalled. We know what we need to do and we’re on it,” said the two-time P&G chief executive officer, who in May rejoined the consumer products giant to replace his successor, Bob McDonald.

During an earnings call on Thursday, Lafley acknowledged problems across two of P&G’s largest beauty brands — namely the $3 billion Pantene business and the $2 billion Olay division — but said, “These are assets. They have real connections to consumers. If we get the consumer connections back, if we get the brand promises and [collections] right, if we execute like we think we can with our marketing and product programs, there’s plenty of room to grow.

“This is an industry where execution really matters,” he added.

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Lafley told analysts that since taking over as ceo, he has spent the last two months “doing a deep dive” into P&G’s business, “trying hard to see things as they are, not as we want them to be.” He said, “We know we’re not consistently winning now.”

Investors seemed to like Lafley’s candor. The company’s share price rose to $82.21 in morning trading on Thursday and later closed at $81.64, or up 1.7 percent, on the New York Stock Exchange.

To help P&G reverse course, Lafley is pushing for all five business units, including beauty, to amplify their focus on profitability.

“We are committed to making productivity a core strength at P&G, just like branding or innovation,” said Lafley. “It will become systemic, not episodic.”

Lafley emphasized, “We will bring a sense of urgency to realize hard savings.”

In fact, the ceo frequently used the words “urgency,” “discipline” and “balance” throughout the call. He noted that his time in private equity — prior to returning to P&G he served as a senior adviser at Clayton, Dubilier & Rice — has inspired him to install a new sense of urgency at the 176-year-old company to foster value creation and what he called “choiceful” decision making, which, he emphasized, are central tenets to his strategy. They are also aimed at inspiring cultural change.

“We’ve got to get to a much more agile, a much faster, a much more decisive culture. We’ve talked a lot about agreeing, disagreeing, committing and going,” said Lafley.

He views the year as one of transition, and cautioned a true turnaround will take time.

“We’re trying to thread a needle here,” Lafley said. “It’s going to take a couple of years before we’ve got everything in place so that we’re hitting on enough cylinders to perform to our full potential.”

On Thursday, P&G reported that net earnings attributable to the company fell by 48 percent to $1.88 billion, or 64 cents a diluted share, for the three months ended June 30, down from $3.63 billion, or $1.24 a share, in the prior-year quarter. The prior-year figure was boosted by profits from discontinued operations.

Net sales in the quarter gained 2 percent to $20.7 billion, compared with $20.2 billion in the prior-year period. Organic sales increased 4 percent, with unit volume gaining 5 percent.

The beauty segment saw sales tick up 1 percent in the quarter to $4.85 billion, with organic sales up 3 percent. P&G’s prestige beauty business grew the most robustly, with sales up in the mid-single-digits range. For the year, beauty declined 2 percent to $19.96 billion.

Lafley emphasized the long, storied history of the company’s peers in the beauty space, naming L’Oréal and the Estée Lauder Cos. Inc. in particular, and characterized P&G as a relative newcomer that’s already grown into the second-largest beauty firm in the world. L’Oréal is ranked number one. “We’ve been at it for 12 to 13 years,” he said. “But it’s a learning curve, and we clearly stalled in a couple of places.” Prior to the call, Lafley said during a press briefing, “We’ve stalled before, and we know what it takes to get it going again.”

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Recalling P&G’s initial approach to building the beauty business, he said, “We put together this collection of businesses and in six or seven years tripled that business [to more than $22 billion].” P&G is newer still to prestige beauty, which now accounts for more than a $3 billion business, said Lafley.

For the full year, net earnings from continuing operations rose 4.6 percent to $11.3 billion, or $3.86 a diluted share, compared with $10.8 million, or $3.66 a share, a year ago. Net sales gained 1 percent to $84.2 billion, up from $83.7 billion.

The company said it expects full-year 2014 organic sales growth in the range of 3 to 4 percent.

“We will be guided by disciplined strategies and operating plans,” said Lafley. “We will focus strategically on core business, on our leading most profitable brands and our leading most profitable markets, channels and customers.”

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