Procter & Gamble Co. (PG) plans major restructuring of its brand portfolio

Up to 100 brands could be sold

CINCINNATI - Procter & Gamble Co. announced another massive restructuring initiative Friday that could cut by a third the number of brands sold by the Cincinnati-based consumer products giant.

The goal would be to focus on 70 to 80 brands that already account for 90 percent of P&G sales and 95 percent of its profit. CEO A.G. Lafley told analysts on its fourth quarter conference call that P&G will “harvest, partner, discontinue or divest” up to 100 brands as part of the initiative.

“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,” he said. “These brands are all well-positioned with consumers and customers, well-positioned competitively. These brands have strong equities and differentiated products and a track record of growth and value creation driven by product innovation and brand preference.”

Lafley said the 70 to 80 brands that P&G will retain include 23 with annual revenue of $1 billion to $10 billion and another 14 with sales of more than $500 million. P&G will also retain 30 to 40 brands with revenue of more than $100 million.

Lafley said the brands P&G will look to divest have been a drag on company growth.

“In aggregate, sales of these brands have been declining 3 percent per year for the past three years. Profits have been declining 16 percent. These brands make up less than half of the average company margin,” he said.

P&G shares were up nearly four percent to $80.30 in late-morning trades.

"This is what people expected from Lafley, to make strategic, tough decisions," said Matt McCormick, vice president and portfolio manager for Bahl and Gaynor Investment Counsel downtown, which owns about 4.2 million P&G shares. "The street likes it. I like it. I think it’s something that needed to be done and really my only frustration is that it wasn’t quicker."

The new divestiture strategy comes as P&G announced a full-year profit of $11.64 billion on revenue of $83.06 billion.

The company said its fourth-quarter revenue fell slightly to $20.16 billion from $20.3 billion due to foreign currency fluctuations and some divestitures. Wall Street expected $20.47 billion.

Net income increased 38 percent in the quarter to $2.58 billion, or 89 cents per share, for the three months ended June 30. That compares with $1.88 billion, or 64 cents per share, a year ago.

Earnings, adjusted for one-time gains and costs, came to 95 cents per share. Analysts polled by FactSet forecast earnings of 91 cents per share.

While the earnings met Wall Street expectations, it fell short of internal P&G goals of 4 percent sales growth and 7 percent growth in core earnings per share.

"We could have and should have done better," Lafley said.

 


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