Procter & Gamble is about to shrink.
The world’s largest consumer products maker said it will jettison more than half its brands around the globe over the next year or two, leaving it with about 70 to 80 of its top performers when the nips and tucks are complete. The maker of CoverGirl, Pampers and Tide declined to specify what exactly it will shed but noted they’re smaller brands that collectively account for less than 10 per cent of sales.
CEO A.G. Lafley said Procter & Gamble should have made the move long ago.
“In an ideal world, we would’ve done this at the depth of the financial crisis, in the recession,” Lafley said Friday during a conference call with analysts and investors. “Having said that, I don’t see any reason to wait. I don’t see any virtue in waiting another minute.”
P&G had already been slimming down in recent years, having sold off food brands such as Jif peanut butter, Folgers coffee and Pringles chips. More recently, it moved to get out of the edible business entirely by selling off Iams pet food to Mars Inc. Now it’s focusing on culling its consumer products, which has mushroomed over the years to include beauty products, detergent, paper towels and razors.
It’s a major undertaking for the company, which introduced Ivory soap in 1879 and even helped coin the term “soap opera” with its sponsorship and production of daytime TV dramas. Today, Procter & Gamble has 22 brands that pull in more than $1-billion (U.S.) in annual sales, including Pampers, Gillette and Tide. It has another 19 brands with $500-million or more in annual sales.
“It’s hard to believe we started with candles and soap in 1937,” Lafley said in a phone interview.
Lafley chalked up the company’s expansive portfolio to the natural evolution of multinational companies, which tend to acquire and create new brands over time. To right its bloated ship, Procter & Gamble came up with a list of criteria for which businesses it wanted to compete in. Ultimately, Lafley said it decided to focus on categories where it has highly differentiated products that are among the market leaders.
The decision to sell or discontinue 90 to 100 brands – many of them smaller, regional products – comes as Procter & Gamble fights to boost sluggish sales. In the latest quarter, it reported a slight decline in sales and missed Wall Street expectations. When discounting factors like foreign exchange rates and divestitures, it said sales rose 3 per cent.
By pruning its product lineup, Procter & Gamble is hoping to put more energy behind products with bigger potential. With its Always Infinity female hygiene pads, for instance, Lafley conceded the company didn’t adequately communicate to women the new absorbing technology that made them superior.
And the company is entering new areas where it sees potential for growth. In the next few weeks, the company plans to start shipping adult diapers under the Always Discreet name in North America, a move intended to capitalize on the country’s aging population.
“Obviously, we’re hoping to find success in female incontinence,” Lafley said.
For its fiscal fourth quarter, Procter & Gamble Co. said cost-cutting helped boost its profit by 38 per cent. Net income increased to $2.58-billion, or 89 cents per share, for the three months ended June 30.
Excluding one-time items, it earned 95 cents per share, topping the 91 cents per share analysts expected.
Revenue fell slightly to $20.16-billion, missing Wall Street expectations for $20.47-billion.
Full-year net income climbed to $11.64-billion, or $4.01 per share, from $11.31-billion, or $3.86 per share in the previous year. Adjusted profit was $4.22 per share.
For fiscal 2015, P&G anticipates adjusted earnings growth in the range of mid-single digits. Revenue is expected to be in the low single-digit range.
Shares gained $1.67, or 2.2 per cent, to $78.99 before the market open.