P&G to shed more than half its brands

CINCINNATI -- Procter & Gamble CEO A.G. Lafley declared Friday the company will sell or exit 90 to 100 mostly minor brands in a bold attempt to refocus the business behind its 70 to 80 remaining best-selling brands.

In an interview with the Enquirer, Lafley stressed size of sales won't be the only criteria for shedding brands. Though he wouldn't name brands, Lafley said P&G will unload even large brands if they don't fit into the company's core beauty, fabric care and other businesses.

"Some of our big brands are in industries that are not very attractive: they're not growing or low margin or commodities," he said. "If it's not a core brand – I don't care whether it's a $2 billion brand, it will be divested."

"Less will be much more," Lafley told analysts. "The objective is growth and much more reliable generation of cash and profit. We're going to be much more agile and adaptable."

Lafley did not provide a list of brands that will be divested or discontinued, but he noted the company's 70 to 80 top brands generate 90 percent of sales and 95 percent of profits.

While P&G is looking to cut mostly small brands, cumulatively their sales add up to the equivalent of a Fortune 500 company larger than Facebook.

Lafley said P&G's organic sales – which exclude the impact of foreign exchange, acquisitions or divestitures – would have grown 4 percent, not 3 percent had the company already shed the non-core businesses.

Lafley acknowledged the exodus will further reduce P&G jobs, but stressed many will be transferred to the new owners that buy them.

"In a lot of cases, the jobs will stay but they will move," Lafley said.

P&G noted the previously announced $2.9 billion sale of its pet food business closed on Friday, shifting 1,100 jobs and five U.S. factories to buyer Mars Inc.

P&G officials said the company is looking to sell or exit most of the businesses in the next 12 to 24 months. To speed the process, Lafley said P&G would sell groups of related brands at a time in some transactions.

Lafley, 67, demurred on analyst questions over whether he will remain CEO throughout the transformation.

"Hey, I serve at the pleasure of the board – I am strategically driven, not schedule driven," he said.

Morningstar analyst Erin Lash called the plan "striking" and said it would reduce investor pressure to split the company up amid concerns it has grown too large.

"We think this shows P&G is breaking ties with its former self, looking to become a more nimble and responsive player in the global consumer products arena," Lash wrote in a note to investors. "These efforts will quell calls to split up the company (given past challenges to respond in a timely fashion to changing market dynamics)."

Bernstein analyst Ali Dibadj said P&G could target larger brands like Duracell batteries and Braun small appliances as well as scores of smaller ones, while stalwart brands like Pampers diapers would be untouched.

"It's an excuse for them to cut massively more costs to invest back into the market," Dibadj said.

Dibadj guessed small labels ranging from Glide dental floss to Clairol Professional hair care could be sold off.

Lafley stressed P&G will keep growing brands in core businesses.

Lafley said 23 brands have sales of more than $1 billion, 14 with sales of $500 million to $1 billion and 30 to 40 brands with sales $100 million to $500 million.

The announcement came in an analyst call after P&G reported Friday an $11.6 billion profit for the fiscal year ended June 30 – up 3 percent from the same time last year.

Sales rose 1 percent to $83.1 billion. Profits beat analyst expectations, but sales fell short of Wall Street projections.

"We met our objectives in a very difficult operating environment," Lafley said. "Still, we have more work to do to deliver the profitable sales growth and strong cash productivity we are capable of delivering."

Wall Street analysts had forecast the Cincinnati-based maker of Tide detergent and Crest toothpaste to report an annual $12 billion profit before one-time items on sales of $84 billion, according to Bloomberg.

P&G reported annual earnings per share before one-time items of $4.22 for the fiscal year and 95 cents for the fourth quarter. Fourth quarter sales were $20.2 billion, down 1 percent.

P&G was predicted to report annual $4.19 earnings per share before one-time items, according to Bloomberg. For the fourth quarter ended June 30, the company was expected to report 91 cents of earnings per share before one-time items or roughly a $2.6 billion profit on $20.5 billion in sales.

Organic sales rose 3 percent for the year with the fabric and home care and baby, feminine and family care units producing the strongest results with 4 percent growth. Beauty lagged with flat organic sales.

Looking ahead, P&G said total sales in the fiscal year ending in June 2015 would grow by low single digits, while organic sales would grow in low to mid single digits. The company also said earnings per share would grow by a percentage in the mid single digits.

The results mark the end of the first full fiscal year since A.G. Lafley returned to the helm of P&G in May 2013.

Previously CEO from 2000-2009, Lafley came back after Bob McDonald stepped down following four years of inconsistent growth.

During his first year back, Lafley has cut a $2.9 billion deal to sell off the pet food business, begun a review of U.S. factory operations for consolidation plans and launched new products like a lower-cost version of its flagship detergent Tide Simply Clean & Fresh and a pivoting-head Gillette razor.

P&G shares closed at $79.65 Friday, up 3%.