Heat’s on for P&G chief in debut
Wall Street skeptics willing to gamble on fruits of cost-cutting
With barely 100 days at the helm of the world’s largest consumer product company, David Taylor heads Thursday to Florida for a command performance: his first public appearance as Procter & Gamble’s chief executive.
The presentation at the Consumer Analyst Group of New York conference in Boca Raton, Fla., comes as the maker of personal and household products such as Gillette razors, Pantene shampoo, Bounty paper towels and Tide laundry detergent, has failed to meaningfully grow the company’s overall sales.
Meanwhile, the world’s economy has faltered while the U.S. dollar has soared.
While P&G has resorted to escalating restructuring measures that have propped up profits, the company’s shares may ultimately be jeopardized because of the company’s failure to grow. The company’s stock closed Friday at $80.99, down about 14% from nearly $94 a share at the end of 2014.
But analysts and investors are poised to give Taylor time. He has about a year for the company to show improving results before investors grow restless, analysts say.
“Taylor wants to convey confidence in himself, the business and its strategy,” said Terry Kelly, a principal at investment adviser Bartlett & Co. “It’s a coming-out party for Taylor.”
When Taylor takes the stage Thursday, here are issues he likely will address:
Results after brand shedding. P&G announced 18 months ago it would sell off or exit 100 slower selling, mostly minor brands. The brand shedding, scheduled to be complete this year, is supposed to leave P&G as a company of 65 larger, faster-growing core brands. The new, slimmer lineup will leave P&G with $70 billion in annual sales, about $10 billion less than before.
The company had previously sold off Iams and other pet food brands and is in the process of selling Duracell batteries to Warren Buffett’s Berkshire Hathaway and merging 43 beauty brands with Coty.
If P&G’s moves fail to yield results, analysts won’t rule out further brand sales. Braun shavers, Bounty paper towels and Puffs tissue all have been mentioned as potential divestiture candidates. Job and other cost cuts. P&G will continue to slim its operations as well as its brand portfolio.
The company first announced its $10 billion cost-cutting plan in 2012. Since then, it has greatly expanded the scope of cuts, slashing more than 20,000 jobs so far. The pending Duracell sale and Coty merger will remove 2,700 and 10,000 more jobs, respectively, from P&G’s payroll.
By mid-2017, P&G will employ 95,000 to 98,000 worldwide. Between cuts and brand sales, P&G is on track to have the smallest workforce since at least 2003 and possibly since 1991.
Beyond job cuts, P&G is overhauling its factory footprint across the USA and elsewhere, enlarging some plants to produce consumer goods for multiple business units while shutting outdated facilities in places such as Augusta, Ga., and Puerto Rico.
The cost-cutting is freeing up cash and beefing up profitability: Last year’s $20.1 billion in operating expenses was down almost 24% from $26.3 billion in 2013.
The pressure of foreign
exchange rates on sales. A global economic slowdown has prompted governments and central banks throughout the world to devalue their currencies, hurting P&G, which does two-thirds of its business outside the United States. P&G has raised prices overseas to preserve profit margins. All told, P&G predicts currency woes will shave almost $5 billion off annual sales ending June 30, up from $4.6 billion a year ago.
Fixes for operations in
China. Taylor also likely will say the company is working to retool its business in China, P&G’s second-largest market, generating $5.7 billion in annual sales.