Procter & Gamble Co. appears to be laying the groundwork for Chief Executive A.G. Lafley to step down as soon as this summer and hand the top job to an internal successor.
In private meetings with Wall Street analysts and investors, senior P&G executives including Mr. Lafley himself have made comments that signaled the 67-year-old CEO, now in his second turn at the helm, could vacate the post this year, people who attended the meetings said. Mr. Lafley is likely to remain chairman for another year or two to help smooth the transition to a new CEO, several analysts have concluded.
The leadership change could set up another period of uncertainty for the world’s largest maker of household products. The maker of Pampers diapers, Olay skin creams and Bounty paper towels has struggled to post solid sales growth since the 2007-2009 economic recession ushered in an era of pickier and more frugal consumers.
P&G also faces challenges including a struggling beauty business and a strong dollar that hurts its overseas earnings. The company reports results for the first three months of 2015 on April 23.
Mr. Lafley declined to comment through a spokesman.
The CEO’s new successor is widely expected to be David Taylor, a 56-year-old P&G executive who has also been at the company for close to 35 years.
Earlier this year, Mr. Taylor was elevated to oversee businesses that generate close to half of P&G’s sales and profits, including the troubled beauty division.
Mr. Lafley, a 35-year P&G veteran who previously was CEO from 2000 to 2009, came out of retirement two years ago with a mandate to revive the company’s fortunes and find a new successor. His original successor, Robert McDonald, left in 2013 amid shareholder discontent about sluggish performance during his four years in charge.
Mr. Lafley hasn’t publicly mapped out a time frame for his departure, saying he will serve for as long as P&G’s board wants him in the job. “We are not schedule driven,” he said last August on the company’s full-year earnings call when asked how long he would stay.
Since then, recent discussions during meetings with Mr. Lafley and P&G Chief Financial Officer Jon Moeller have led the analysts to conclude P&G could name a new CEO at the end of its current financial year, which concludes in June.
Mr. Lafley has told investors that one of his predecessors, John Pepper, was chairman for the first two years Mr. Lafley was CEO, “and that this co-operative but distinct relationship...was enormously beneficial to the company,” Citigroup analyst Wendy Nicholson wrote in a March report after she spent a day with Mr. Lafley hosting investor meetings in New York.
Ms. Nicholson said one of the biggest takeaways of the meetings was that Mr. Lafley could step down this year—adding she was surprised and disappointed that it might happen so soon, as there is still much work to be done at P&G.
Back in 2009, Mr. Lafley remained chairman of P&G after handing the CEO job to Mr. McDonald. But he resigned from the chairmanship six months later, earlier than many analysts and investors had expected.
Nearly two years into Mr. Lafley’s second term as CEO, there are few signs that P&G has turned things around.
Since his return, the company’s stock price has risen 6%, well below the S&P 500 stock index’s 26.7% gain over the same period. P&G’s sales growth rate has remained stuck in a range of 2% to 3%, excluding currency moves.
On Mr. Lafley’s watch, P&G has stepped up efforts to cut costs and increase manufacturing productivity, simplified its organizational structure and tightened its focus on its biggest, best-known brands like Tide detergent, Crest toothpaste and Pampers diapers.
The company has rolled out new premium-priced goods such as a nimbler Gillette razor and has re-entered the adult incontinence market with a line of products under its Always brand.
Last summer, Mr. Lafley declared P&G would further streamline its operations and try to speed growth by exiting about 100 brands that have dragged down the company’s performance, and narrow its focus to around 65 leading brands.
So far, P&G has moved to shed roughly 40 brands, from well-known names like Duracell batteries and Iams pet food to smaller ones like Camay soap and Vicks VapoSteam, a liquid medication that is poured into steam vaporizers.
The company is aiming to detail plans for the remainder of the divestments or brand exits by this summer.
Mr. Lafley is now working to clean up the sprawling beauty business he built during his first turn at the top. Sales at the division were the worst among P&G’s main business lines in the last three months of 2014—down 6% and the only line to post a drop excluding currency effects.
He is moving to dismantle parts of the division after concluding that expanding aggressively into beauty didn’t play to the P&G’s strengths of mass-marketing products with well-defined benefits to consumers.
Investment bankers representing P&G recently started soliciting bids from potential buyers for chunks of the beauty business, including its Wella and Clairol salon hair-care products division, its cosmetics brands like CoverGirl, and a portfolio of designer fragrances. Those brands collectively generate close to a third of P&G’s beauty sales.
The company is planning to keep its biggest brands such as Pantene shampoo, Head & Shoulders shampoo and Olay skin creams.
To be sure, P&G is regaining its footing in some areas. In the U.S., its largest market, Mr. Moeller recently told investors that P&G is growing or holding market share in 70% of its product categories, according to a March research update from Deutsche Bank analystBill Schmitz. That percentage was around 50% a few years ago.
The company’s profit margins have also expanded, reflecting the initial fruits of its restructuring, but the weakening of many foreign currencies against the U.S. dollar has dampened the effect on P&G’s bottom line and weighed on its sales.
In the year that ends this June, P&G has forecast slightly lower net sales and flat if not lower net profit from the previous year.
“The jury is still out on what Lafley has achieved,” said Bill Chappell,an analyst at SunTrust Robinson Humphrey. “I’m not sure there’s been a lot of tangible change to P&G that’s visible to investors.”
Source : wsj
