Procter & Gamble Co. (PG) to exit Duracell battery business

CFO: Lafley strategy still in "early innings"

CINCINNATI - Procter & Gamble Co. will split its Duracell battery business into a new stand-alone company, as part of a broader strategy to divest up to 100 brands.

The news comes in a week of change for P&G, which reshuffled its senior management to increase its focus on 70 to 80 core brands that account for 90 percent of total revenue and 95 percent of profits.

P&G reported earnings of $1.07 per share in its first quarter on revenue of $20.8 billion. Both were in line with analyst expectations. The Duracell exit, which P&G hopes to complete by the end of next year, was expected by many. Investors have reacted positively to the news, with P&G shares hitting an all-time high of $85.97 before closing at $85.16, up 2 percent.

“We greatly appreciate the contributions of our Duracell employees," said CEO A.G. Lafley in a press release. "Since we acquired the business in 2005 as part of Gillette, Duracell has strengthened its position as the global market leader in the battery category. It’s a business with attractive operating profit margins and a history of strong cash generation. I’m confident the business and its employees will continue to thrive as its own company.”

P&G said shareholders would be given the option of exchanging some, none, or all of their P&G shares for shares in the newly formed Duracell company. P&G’s outstanding share count would be reduced by the number of P&G shares exchanged.

Duracell generates $2 billion in annual sales with 2,700 employees, "very few" of whom work in Cincinnati, said Chief Financial Officer Jon Moeller. Headquartered in Bethel, Conn., the brand operates globally, with the U.S. as its largest market. Moeller wouldn't disclose profits for Duracell, nor would he say what the business is worth.

But it is worth less than it was three months ago, based on an accounting charge disclosed in Friday's earnings report. The company recognized a goodwill impairment charge of $932 million, or 32 cents per share, to reduce the value of Duracell assets on its balance sheet. That reduction was based on the sale price P&G recently achieved when it sold a piece of its battery business, a joint venture in China, for an undisclosed price.

Moeller said P&G is about a quarter of the way through its brand divestiture initiative, having sold, discontinued or made decisions to consolidate about 25 brands in the last five quarters. The biggest deal to date disposed of seven brands in pet care, as Mars Inc. and Spectrum Brands acquired pieces of the Iams, Eukanuba and Natura product lines in the U.S., Asia and Europe.

"We generated very good value in the three-stage transaction, earning more than a 20 times EBITDA multiple, on past three year results," Moeller told analysts Friday.

Several analysts questioned P&G’s stubbornly sluggish growth during Friday’s earnings call, as only two of the company’s five major business segments posted net sales growth in the three months ended Sept. 30. Beauty and grooming declined one percent, while fabric and home care was down 2 percent.

Moeller said P&G is still “in the early innings” of its reformation with plenty of productivity savings yet to be captured and lots of market share to be gained through new product innovations, including FlexBall, a swivel-head razor launched in April.

“The FlexBall innovation is not only new to market, it’s only in one country serving one gender,” Moeller said. “We will begin globalizing this starting in calendar year 2015 … so we’re in the early days of that whole dynamic.”

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