Moving the growth needle at Procter & Gamble Co. (NYSE:PG) isn't easy. Not only is the company an $80 billion-in-sales behemoth, but it is after all in the consumer products business. And in the developed world at least, growing sales of shampoo and diapers faster than GDP is tough. Mostly, it's just a brutal battle for share.
Yet trying to move that needle is what CEOs, especially new ones, are all about. So how do things stand for Bob McDonald, who just reported his first quarter of results as chief executive at the company?
The
good news, duly applauded by investors who bid the shares up more than 4% Thursday, was that price cuts on the company's premium brands and the addition of lower-cost alternatives stemmed the defection of recession-stricken consumers to store brands. Earnings were down a mere 1%, to $3.35 billion, on sales that fell 6%, to $19.8 billion. Both numbers were better than predicted, and the company revised its forecast for organic sales growth in the fiscal year ahead upward to the 2% to 4% range.
But even 4% is not going to make people start calling P&G a growth company, which they were doing a few years back when A.G. Lafley (who remains chairman) was teaching everyone about open innovation and coming up with new twists for old brands, like Mr. Clean's Magic Eraser.
So M&A comes quickly to mind. The Wall Street Journal ran a
piece on Wednesday speculating about P&G putting nonstrategic brands like Pringles and Duracell on the block if they don't start performing better. Of course, if they're nonstrategic, why wouldn't P&G sell them anyway, as it did Folgers and so many assets under Lafley?
The Journal piece also mused about P&G's possible shopping list, which might include haircare company Alberto-Culver Co. (NYSE:ACV) or, say, the consumer products portfolio Pfizer Inc. (NYSE:PFE) got when it bought Wyeth.
Yet attractive though they may be, they are small compared with P&G. Alberto-Culver has about $1.4 billion in sales, and the Wyeth portfolio, which includes Advil and Chapstick, has about $2.7 billion in sales. And are they even for sale? As tax expert
Robert Willens explains, even if Pfizer wants out of consumer products (
again), it faces a big tax hit on the sale of Wyeth assets, since the deal structure means it inherits Wyeth's low basis in them.
Neither of these --o r for that matter, P&G's
possible purchase of the air-care part of Sara Lee Corp.'s international household products unit -- would deliver the jolt that Lafley achieved when he paid $57 billion for the Gillette Co. in 2005.
It's no secret that P&G remains interested in buying. Back in March Lafley was talking about the
opportunities he hoped the downturn would create. Big pharmas eschewed megadeals for a while, but when the growing got tough this year Pfizer (a past practitioner) and Merck & Co. (NYSE:MRK) (a new one) embraced them once again. Could P&G be ready to think on that scale again?
In a presentation to investors in September, McDonald touted P&G's growth prospects around the globe, especially in emerging markets. He said he wants a billion more customers, and that if P&G can get per capita spending on P&G products in India and China up from $1 and $3, respectively, to the $20 level P&G enjoys in Mexico, that will translate into $40 billion in sales.
It's a compelling vision, but not one to be realized overnight, as this
piece in Livemint shows. It explains what P&G will have to do to extend its reach from urban to rural India, where it hopes to add half those billion customers by 2014.
The Gillette deal, by contrast, added $10.5 billion in revenue in a hurry. When Clay Daley stepped down as P&G's CFO in January, the company said he'd be taking on one more big project before leaving: codifying the lessons learned in the successful Gillette integration. He was expected to finish in September, so McDonald has the playbook handy if he should need it. -
Kenneth Klee
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