P&G to Cut Half its Brands
After a disappointing year, consumer products giant The Procter & Gamble Co. is cutting way back with plans to eliminate at least half of its 160-brand portfolio.
A.G. Lafley, chairman, president and chief executive officer, who retook control of the company in May, said 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 on a conference call, noting that sales could have risen much faster, at 4 percent.
While shying away from specifics on which brands will be cut, Lafley said: “We will become a much more focused, much more streamlined company of 70 to 80 brands. 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.
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 and 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.”
Speaking of the whole company, Lafley said, “While operating discipline and executional capability are getting better, a lot better around here, it must continue to improve to reach the levels of performance this company and our organization is capable of.” That mean’s a dramatically smaller company, at least from a brand perspective.
The company plans to eliminate 80 to 90 brands over the next year or two and focus on the 70 to 80 brands that produce 90 percent of its sales and 95 percent of its profits.
"This will be a much simpler, much less complex company of leading brands that's easier to manage and operate,” Lafley said. “This simplicity will significantly focus investment and resource allocation and enable execution.”
Investors gave a thumbs up to the move, pushing the company’s stock up 4.2 percent to $80.59 by 11:30 on Wall Street.