Saturday, August 2, 2014

P&G’s New Plan: Keep It Simple Stupid

What is Procter & Gamble (PG) throwing out?

For the last three years, P&G has labored to cut costs and sharpen its focus on its biggest brands in an effort to revitalize sales and improve profitability. In short, the maker of Tide detergent, Pampers diapers and Olay skin creams wants to catch up to its faster growing rivals.

That not an easy thing to do for such a large company.

But the consumer products giant has just ended a fiscal year in which net revenue grew a paltry 1%. So it's decide to get smaller – quite a bit smaller —  by shedding more than half of its brands.

That's right. P&G plans to keep 70 to 80 brands and jettison the rest. That's a massive undertaking, given the breadth of its current portfolio, which includes Head & Shoulders, Old Spice, Max Factor and Hugo Boss.

Investors cheered. The stock rose 4% to $80.48, making P&G the best-performing stock in the Dow Jones Industrial Average.

Early Friday, P&G reported fiscal fourth-quarter operating profit of 95 cents a share, up from 79 cents a year ago, as revenue slipped 1% to $20.18 billion. Organic sales, which exclude impacts from currency movements and acquisitions, rose 2%.

Analysts polled by Thomson Reuters had expected earnings of 91 cents a share and revenue of $20.48 billion.

Ahead of the company's conference call, Barclays analyst Lauren Lieberman was not impressed with the numbers. She wrote:

Expectations were low coming into results so PG shares could trade up on the EPS beat, but we see this quarter's performance (and the outlook) as notably weak. In particular, volumes were flat even with a full slate of well-supported new product news in the market in big categories like Fabric and Hair Care. Beauty was particularly disappointing and we'd already modeled the quarter with the tough comparison in mind and greater promotional spending doesn't seem to have moved the needle. In terms of the outlook, it looks as though Street estimates need to come down ~2% (note, we are currently $0.09/sh below consensus for FY15).

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