The Procter & Gamble Company PG slashed CEO, Alan George Lafley’s pay for fiscal 2015 by $1.1 million after sales and profits for the year fell short of its targets.
Lafley’s total compensation for fiscal 2015 (ended Jun 2015) was $18.3 million, less than $19.5 million last year, mainly due to lower bonuses. He received a bonus of $3.29 million in the fiscal year, less than $4.4 million paid last year, while his annual salary of $2 million remained the same. Also, he was given $12.4 million in stock awards and $512,000 as other compensation, per a proxy statement filed by P&G.
Last month, P&G announced that David Taylor, a 35-year company veteran, will replace Lafley as the CEO, effective Nov 1. Lafley will become executive chairman to counsel and mentor him.
P&G performed below expectations in fiscal 2015. Organic sales growth of 1% fell short of expectation of improvement in a low single-digit range due to challenges in the Beauty segment and trade inventory corrections in China.
P&G’s sales performance has been sluggish over the past few quarters due to significant negative Fx impact, slower global growth and market share erosion/lower consumption in several countries due to pricing action undertaken to offset negative currency impacts and macroeconomic headwinds in a number of key markets. Earnings decline of 2% in fiscal 2015 also compared unfavorably with management’s expectations due to significant negative currency impact.
In order to turn around its business, in Aug 2014, P&G announced portfolio strengthening and simplification plan. Under the plan, that is nearing completion, the company eliminated almost 60% of the brands (roughly 100 brands) that were witnessing decline in sales and profits.
In keeping with this plan, P&G entered a deal to sell 43 beauty brands to Coty Inc. COTY in July this year. Last year, in July, the company sold off its American and Asian pet care business to Mars, Inc. and the European pet care business to Spectrum Brands, Inc. SPB in December.
Moreover, P&G signed a deal to divest the Duracell batteries business to Berkshire Hathaway, Inc. BRK.B in exchange for Berkshire’s equity stake in P&G. In addition, the company has exited the Bleach business, Vicks VapoStream, Camay and Zest bar soap brands, and several skin care and fragrance brands.
Following the closure of the beauty brands merger with Coty, expected in the second half next year, P&G will have a portfolio of about 65 consumer and shopper preferred leading brands focusing on 10 categories organized under four industry-based sectors. These brands have historically grown faster and have been more profitable than others.
Nonetheless, in fiscal 2016, sales trends are expected to remain weak. Management warned that the top line will be hurt by broader macro headwinds like economic slowdown in China and Brazil and significant currency headwinds in Russia, Ukraine, Japan and Venezuela.
Core earnings per share are also expected to be down slightly to up in mid-single digits. In addition to the currency headwinds, lower non-operating income and higher taxes are expected to put pressure on the bottom line. Moreover, increased investments in marketing, innovation, R&D, supply chain and capacity additions will hurt profits.
Though the Zacks Rank #4 (Sell) company is investing in its brands and products while re-designing the supply chain to improve results, we believe these efforts will take time to deliver the desired outcome.
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