The Procter & Gamble Company (PG) last week announced its plans to divest around 100 underperforming brands so as to concentrate better on fewer core strategic brands.
During its fourth-quarter and fiscal 2014 conference call held on Friday, Aug 1, Chief Executive Officer (CEO), A.G. Lafley, announced plans to streamline its business to focus more on 70 to 80 of its biggest brands including the Billion Dollar brands like Tide, Pampers and Oral-B. Though the company did not specify the brands it plans to keep or divest, it stated that these 70 to 80 brands have accounted for 90% of company sales and over 95% of profits.
Over the next two years, P&G will divest or discontinue 90 to 100 brands whose sales and profits have been declining over the past three years. Reportedly, the list could even include some larger brands if they do not strategically fit into the company’s core business.
CEO Lafley believes that a smaller and more focused company should be able to grow faster, create more value and be much easier to manage.
Though P&G has been accelerating productivity savings, cutting costs and improving marketing efficiency, currency headwinds, rising commodity and labor costs, increasing competitive pressures, challenging retail trends and deceleration in emerging market growth rates have made it difficult to sustain profits. Moreover, the Zacks Rank #4 (Sell) company has been struggling to grow sales and, in fact, missed the Zacks Consensus Estimate for sales in the past three quarters. In the recently-concluded fiscal 2014, revenues grew a mere 1%.
P&G has been regularly divesting unfit units to concentrate on its fast growing businesses. On Friday, the consumer goods giant sold off a significant portion of its pet food business for $2.9 billion to privately-held American confectionary and pet food manufacturer, Mars, Inc. under a deal entered into in April this year.
In Jun 2012, P&G sold its snack unit, which included Pringles, to cereal maker The Kellogg Company (K), for $2.7 billion. In Oct 2009, the consumer giant sold its global pharmaceuticals business to pharmaceutical company Warner Chilcott plc to focus on the fast growing consumer oriented healthcare business. In fiscal 2013, P&G divested its underperforming bleach business in Italy and Portugal and the Braun household appliances business.
The decision to right size its business came after P&G reported mixed fiscal fourth-quarter 2014 results beating the Zacks Consensus Estimate for earnings but missing the same for sales. The consumer products giant met its financial targets for the fiscal year and issued a positive outlook for the next. Shares of P&G climbed more than 3% in trading on Friday following the divesture announcement and earnings report.
P&G’s European rival, Unilever plc (UL) has also been regularly vending underperforming businesses to focus more on its core portfolio and deliver sustainable
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