CINCINNATI - A.G. Lafley got a hero’s welcome last year when he returned to Procter & Gamble Co. for a second term as CEO. Now, it seems the welcome mat is wearing thin.
Recent option-trading activity indicates “a sudden surge in pessimism” in advance of P&G’s fourth quarter and full-year earnings report, which is due Aug. 1, said Todd Salamone, vice president of research for Schaeffer’s Investment Research in Blue Ash.
Short-selling of P&G shares, which is a bet investors make when they think the stock price will fall, increased 54 percent in the two weeks ended June 30.
“Short interest on the shares is the highest it’s been since January 2012,” Salamone added.
Investment bank Wells Fargo & Co. downgraded P&G stock July 11 from outperform to market perform, saying its “market share trends have weakened in the face of competition,” and P&G’s “launch activity seems more vulnerable than ever” to the promotional activity of rivals.
The Wells Fargo downgrade came 11 days after investment firm B. Riley & Co. lowered its stock-price target on P&G by one dollar to $87, while maintaining its neutral or hold rating on the stock.
A summary of analyst recommendations at Zacks.com shows nine analysts now rate P&G as a “buy” or “strong buy” while nine recommend holding the stock.
There has been no rating change by Bernstein Research analyst Ali Dibadj, but he told WCPO that investors are losing patience.
“A.G. Lafley needs to start showing improvement over the next few quarters or investors will look for a plan B, including a breakup,” he said.
Cincinnati money manager Matt McCormick says the honeymoon may not be over for Lafley, but “it’s getting late in the week.” McCormick, vice president and portfolio manager for Bahl and Gaynor Investment Counsel downtown, said investors are “looking for larger signs of change” than the incremental improvements P&G has demonstrated in the past year.
Lafley “wrote a book on strategy,” McCormick said. “People would sure like to see it implemented.”
P&G’s stock price fell 54 cents to $80.40 Thursday. It's up 95 cents, or 1.2 percent, from the $79.45 closing before Lafley’s return was announced on May 23, 2013.
P&G shares reached a 52-week high of $85.82 in late November, as investors bought into Lafley’s early strategic moves of accelerating plans for productivity savings, selling off underperforming business units, improving innovation and boosting the performance of P&G largest and most profitable brands.
“We have strong plans in place from an innovation and productivity standpoint,” said P&G spokesman Bryan McCleary, who points to a March report by the market-research firm, IRI . It listed seven P&G products among the top 10 new product launches in 2013.
P&G has yet to confirm recent WCPO reports that it’s about to launch a new product to address adult incontinence, a category that analyst Dibadj pegs as a $7 billion global business that could provide up to $800 million in new revenue for P&G.
Other recent product launches include the introduction of a skin care line from Dolce & Gabbana , which will be available at luxury department stores, including Saks in the U.S. and Harrods in London.
On July 16, P&G and Whirlpool announced a “breakthrough technology” called Swash . It’s a $499 machine that consumers can use to refresh clothes between trips to the dry cleaner.
Many expect Lafley to reveal new details on P&G growth initiatives in his next appearance before analysts: An Aug. 1 conference call to discuss fiscal fourth-quarter and full-year earnings.
McCormick said Lafley can expect a more skeptical crowd than the group that happily welcomed him back to the Ivory empire last August.
“There’s no question he received a hero’s welcome. There’s no question that people are also giving him the benefit of the doubt. But it’s not a blank check,” said McCormick. “What they’re looking for is a more dramatic unveiling of a plan that could be immediately understood, implemented and accretive to the stock price. The margin growth needs to improve. The dividend growth needs to be sustainable. And people are looking for them to move the stock price higher.”