Healthy hair and younger skin are key elements of the beauty recovery plan at Procter & Gamble Co., Chief Financial Officer Jon Moeller told analysts Tuesday morning.
Moeller spoke at the Morgan Stanley Global Consumer Conference in New York Tuesday, providing lots of detail on how P&G aims to turn around its lagging beauty brands. Analysts have been fretting for months over a lack of market share growth on P&G beauty products, which account for 23 percent of company revenue and 21 percent of pre-tax profits.
Moeller has previously acknowledged that restoring growth in P&G beauty lines is a key priority for the company. As WCPO reported in June , some analysts think a turnaround in beauty could make its Group President, Deborah Henretta, a leading candidate to replace A.G. Lafley as CEO.
Moeller didn’t address the leadership issue, but stressed the importance of new product launches in reviving company growth. He said P&G is “expecting a heightened level of promotional spending ahead of our product initiatives launched in early next calendar year especially in North America fabric care and beauty.”
Moeller touted new product launches like Covergirl’s “Flamed Out” Collection, which is being promoted by Rock Star Katy Perry and has a promotional partnership with the new Hunger Games movie, “Catching Fire.” Other new beauty launches include Gucci’s new Made to Measure fragrance and Wella Color.id, a new hair-coloring product for salon professionals. In addition, Moeller said Secret’s new “stress response” deodorant grew market share on a value basis by 1.5 percentage points in the quarter ended Sept. 30.
But Moeller also conceded that P&G’s overall progress in beauty care has been stalled by two big brands: Pantene and Olay.
In the case of Pantene, he said the strategy is to go back to basics by emphasizing the health benefits of existing Pantene products.
“Last January, we began converting all of the U.S. Pantene-based product line positioning back to health-based hair benefits,” he said. “We’re ensuring that the benefits are clearly and consistently communicated with strong claims on package, in advertising, online and on the shelf. Since making these changes value share has stabilized.”
Moeller said “product packaging and commercial innovations” have produced double-digit shipment increases in Latin American and “strong growth” in Japan, Europe, the Middle East and Africa. New marketing materials in the U.S. will emphasize “healthier hair with every wash” to “improve Pantene’s consumer proposition” and grow market share.
The Olay brand is seeing some growth from the launch of its Fresh Effects bundle of skin care products earlier this year, which filled a gap that P&G noted in the middle of the price tier.
“This product line is targeted at younger consumers interested in more than anti-aging benefits,” Moeller said. “Distribution on Fresh Effects is ahead of target and over 80 percent of consumers trying Fresh Effects are non-Olay users.”
Olay is also upgrading its Natural White product line and will be launching new innovations “as they’re ready for market.”
The changes outlined by Moeller may not be enough to satisfy investors, who are eager for P&G’s share price to grow and see the company as to big an stodgy to delilver such results.
“This is a good step, but I think investors are going to want more,” said Matt McCormick, vice president and portfolio manager for Bahl and Gaynor Investment Counsel downtown. “I think they need to shrink to grow, spin off some of their other divisions to be a little more focused.”
Others see acquisitions as the answer in beauty care.
“To really make a run in facial skin care, the company needs another brand, ideally in the prestige space,” said Deutsche Bank analyst Bill Schmitz in an Oct. 25 report.
Schmitz called Olay “a looming problem” for P&G and a brand where “nothing good seems to be happening.”
While he expects beauty growth to “remain relatively weak,” Schmitz sees potential for supply chain savings and divestitures to positively impact P&G earnings. So, he maintains a buy rating on P&G stock with a 12-month price target of $90 per share. Shares closed at $84.57 yesterday and are down 17 cents in mid-day trading Tuesday.