Procter & Gamble delivers strong answer to activists with Q4 results
CEO Taylor, Trian Partners trade barbs
7:51 AM, Jul 27, 2017
6:43 PM, Jul 27, 2017
CINCINNATI - Procter & Gamble Co. took the offensive against activist investor Trian Partners Thursday, citing concerns that founder Nelson Peltz would bring “extra advisors” with him if he joined P&G’s board.
“We don’t need additional people running the company,” said P&G spokesman Damon Jones. “It’s not just about having an additional person on the board. It’s the activity system that could come along with that. Does the board member bring extra advisors?Based on some understanding we have with Trian’s past practices, there’s a high potential for distraction.”
CEO David Taylor hinted at the issue in P&G’s fourth-quarter conference call, when he told Wall Street analysts:
“Achieving our objectives will not only require continued focus as a organization but also that we prevent anything from derailing the work that is delivering improvement.”
A Trian spokesperson dismissed P&G’s concerns as “recycled public relations rhetoric.”
P&G closed its 2017 fiscal year by exceeding analyst expectations on profit, revenue and organic sales growth, which tracks adjusted revenue that excludes unusual factors like the sale of 100 brands. Taylor said the performance is evidence that P&G can grow as a smaller, leaner company with 65 brands that compete in 10 product categories.
“We had a year where we made progress,” Taylor said. “We're on plan and the plan is working.”
P&G raised its concerns about “extra advisors” after Trian released a statement asserting that the company has yet to address “the root causes” of its sluggish growth in recent years, including and “overly complex organizational structure and slow moving and insular culture.”
The Cincinnati-based maker of Tide detergent and Gillette razors posted a $2.2 billion profit, or 85 cents per share, on revenue of $16.79 billion in its fiscal fourth quarter. Analysts were expecting $16.02 billion and earnings per share of 78 cents.
P&G reported 2 percent growth in the closely watched organic sales metric. That’s better than the 1.6 percent growth analysts were predicting.
But it wasn't good enough for Trian, which issued this statement late Thursday:
“The real issues that must be addressed are P&G’s deteriorating market share and excessive cost and bureaucracy. Today, P&G reported a 2 percent increase in sales, which represented another quarter of lost market share, along with better margins and earnings. But those increased margins and earnings came as a result of reducing advertising, specifically digital, a tactic we believe will damage the value of the company’s brands if continued in the long term.”
Addressing the market-share issue in a conference call with reporters Thursday, Chief Financial Officer Jon Moeller said P&G grew market share in 35 of the top 50 countries where it competes.
“We fully intend on accelerating that next year,” he said.
P&G shares were up nearly 2.5 percent in pre-market trades to $91.50. Shares drifted lower before closing at $90.68, as investors digested earnings call and financial commentary about the company’s future growth prospects.
“Are you now a structurally lower top line growth company?” Morgan Stanley analyst Dara Mohsenian asked in one exchange that was typical of the P&G call.
The question came after P&G revealed organic sales will grow between 2 and 3 percent in 2018, but cautioned that the year would start with even slower growth for the three months ending in September.
“I do not believe we're structurally a slower growing company,” Taylor said. “If anything, the things we've done over the last several years have positioned us to be more agile and were able to take advantage of new opportunities and markets.”