Procter & Gamble may have pared down its more than 200-brand portfolio to just 65 — but that doesn’t mean it’ll stay that way.
Chief executive officer David Taylor and chief financial officer Jon Moeller made it clear on the company’s extra-long earnings call Thursday that P&G is willing to make acquisitions if they align with the company’s post-divestiture organizational structure.
“We’ve made the decision to say we’ll be active managers…We won’t do anything until we see something that can create value and leverage the core capabilities of this company,” Taylor said. “We’ve learned a lot on the round trip,” he added — referencing P&G’s recent sale of its beauty portfolio to Coty Inc. and disposals of other businesses, including Duracell.
P&G plans to incorporate those learnings — “what worked and didn’t work,” Taylor said — into its strategy going forward. “We see the opportunity to acquire new technology capabilities or companies that are in spaces that are in our core 10 categories.”
Moeller added potential targets could even be beyond those core 10 categories provided they complement them. “Products consumed daily, or more than one time per day, those are categories we really like,” Moeller said. “Categories where a product is consumer once or twice or three times a year are not as attractive.”
The executives spent more than 90 minutes on prepared remarks and answering the questions of Wall Street analysts on the company’s earnings call, after P&G reported flat net sales for the fiscal year and fourth quarter, and 2 percent increases in organic sales for both time periods. The financial reports come as P&G shareholder Trian Fund Management LP is waging a proxy fight to try to get a board seat for its founding partner, Nelson Peltz, who has said he wants to help increase sales and profits. P&G executives met with Peltz, but ultimately denied him a board seat.
For the full year, P&G’s net earnings were $15.4 billion, up 45 percent from $10.6 billion the prior year. Net sales were flat at $65.1 billion, including a negative 2 percent impact from foreign exchange rates. Organic sales were up 2 percent because of an uptick in organic shipping volume, the company said. Diluted net earnings per share were $5.59, up 51 percent from the prior-year period.
Net earnings for the fiscal fourth quarter were $2.2 billion, up 12 percent from $1.96 billion in the prior-year period. Sales for the fiscal fourth quarter were also flat, at $16.1 billion, which includes a negative two point impact from foreign exchange. Organic sales were up 2 percent. Diluted net earnings per share were 82 cents, up 19 percent from the prior-year period.
For the fourth quarter, beauty net sales were down 1 percent, but grooming net sales were up 3 percent by volume, P&G said. Organic beauty sales were up 5 percent year-over-year, P&G said, because of a high-single digit increase in skin and personal care driven by SK-II (which has increased pricing behind product innovation). Hair-care sales also improved, also due to increased pricing. Grooming organic sales were down 1 percent, due to decreased pricing in shave care.
“From a revenue standpoint, performance was still a bit lumpy,” wrote Barclays analyst Lauren Lieberman in a note. “The biggest difference versus our model was in the dramatic improvement in Fabric & Home…Beauty was also a positive surprise, we’d note that product mix (strong performance from SK-II) and pricing (on Hair Care globally) were the primary drivers, such that volumes have remained sluggish and in line with our expectations.”
In grooming, P&G is focused on bringing consumers back into its brands.
“The path to build the business both in sales and profits is to bring users back in, and then to have products in each of the ladders that the consumers see as better, so they move up the ladder,” Taylor said. “This trade-up model works,” he said, acknowledging that the P&G grooming business has not always done a good job at bringing in new users.
“Once one gets into one of the various places you can enter the Gillette franchise, we’ll work to expose them to better options and higher performing options,” Taylor said.
In beauty, Olay launched Olay Skin Advisors, an artificial intelligence program that aims to provide women with more precise skin education via mobile phones and tablets. Head & Shoulders is experiencing strong growth, and was up 5 percent, Taylor noted.
On a larger scale, P&G executives also noted the company is working to give its regions more autonomy to make decisions, and that the corporation is using something called P&G Ventures to look for inspiration outside of P&G’s core 10 product categories.