A.G. Lafley has made his move at Procter & Gamble Co., unveiling a dramatic plan to sell off or shutter at least half of the consumer product giant’s 160 brands.
But the details are still fuzzy.
Lafley, who in May reclaimed his old job as chairman, president an d chief executive officer, did say that P&G’s family, feminine and baby-care business would lose fewer brands than its others. He added that he expects the trimming to result in fewer layoffs than the company saw in 2002, when nearly 10,000 jobs were cut.
The company plans to eliminate 80 to 90 brands over the next year or two and focus on the 70 to 80 that produce 90 percent of the group’s sales and 95 percent of its profits.
Investors gave the notion of a tighter P&G the thumbs up and traded shares of the company up 3 percent to $79.65 — making it the third-strongest stock in the 100-issue WWD Global Stock Tracker Friday.
“I view it as a slimming down to bulk up,” said John Puchalla, debt analyst at Moody’s Investors Service. “They’ve really struggled to try to improve revenue growth and margins at the same time and these [brands] seemed like a distraction. It’s not really that material in the grand scheme of things for the company, and if it allows them to execute better longer term that’s a positive.”
Still, Puchalla said it was unclear exactly how the company plans to operate better.
“They really have not provided a lot details on the things they’re doing to improve execution,” the analyst said. “You get bits and pieces of information, but there’s a lot more to the story that’s really not been told yet.”
Lafley told investors on a conference call that P&G delivered on its financial commitments for the year ended June 30, but “could have and should have done better.”
The overall company saw earnings from continuing operations rise 4 percent to $11.71 billion on a 1 percent gain in sales, to $83.06 billion.
“Delivering a better year was solely in our influence and control,” said Lafley, noting that sales could have risen much faster, at 4 percent.
The ceo said P&G would be streamlined and “organized into about a dozen business units, and the four focused industry sectors.”
The company currently has five main areas of business: beauty; grooming; health care; fabric care and home care, and baby, feminine and family care.
Of those five, beauty turned in the weakest sales performance for the fourth quarter, but posted a 23 percent rise in profits of continuing operations, to $498 million. Net sales fell 5 percent to $4.63 billion, with organic sales slipping 3 percent and currency exchange making up the balance of the decline.
For the full year ended June 30, the company’s beauty business drove earnings up 11 percent to $2.74 billion on a 2 percent drop in sales, to $19.51 billion.
Retailers said they didn’t expect beauty brands to be cut, at least immediately. Instead, major mass market retailers indicated the editing is expected in household and commodity items, especially paper goods.
On the call, Lafley said beauty was “one of the better-performing sectors this last year; unfortunately, it was a little unbalanced. Too much of the value creation came from cash and profit improvement, although I will take it and there’s a lot more there.”
He said the company had seen progress in its Old Spice business. The Pantene brand also saw some progress, although the ceo said it was “still not the progress I would like in the U.S.”
“We had a little bit of progress which excited some of our competitors and turned into a second quarter that was heavily promoted, but at any rate, we will get through that,” he said. “Pantene is growing very strongly and in important places like Brazil….Head & Shoulders has gone from strength to strength. Herbal [Essences] is growing again. Vidal [Sassoon] is growing in key markets and then before the year was out, even on Olay, which is still struggling, we have some real encouragement in a couple of places.”
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