Procter & Gamble (PG) , currently the largest national distributor of household goods, announced it will shed many of its subsidiaries to focus on the top 70 to 80 brands that account for 90% of its $83 billion in annual sales. That means P&G will divest, merge or drop 90 to 100 of its underperforming brands.
P&G shares certainly are not slimming down at the news, up as high as 4.3% at one point in Friday trading. Shares eventually closed at $79.65.
The news follows a fourth quarter earnings report, which announced sales reached $20.16 billion, falling short of analysts’ expectations of $20.48 billion. However, P&G’s profits hit $2.58 billion, up 37% from the same period last year.
This is not the first brand cleanout in P&G’s history — former holdings for the blue chip company include Aleve, Crisco and Pringles. It has also seen cuts in ad spending to $9.1 billion, down from $9.7 billion last year. Plans for the future include further cuts to television ads paired with a shift to more impactful digital media marketing.
Top-performing brands that will remain on P&G’s menu include Tide laundry detergent, Gillette razors and Pampers diapers. Those remaining after the mass divestment will be organized into 12 business units across four sectors to better rationalize operations.
Such a significant move comes just 14 months after CEO A.G. Lafley returned to lead the company following a three-year retirement hiatus. While P&G met its 2013-2014 financial commitments, some of the brands in question fell short of the 4% sales growth goal, Lafley explained on a conference call. He expects that all P&G departments from marketing to manufacturing will benefit from the more focused organization.
According to Lafley, P&G will become a leaner company that is “far simpler to manage and operate.” He gave no mention of the impact on jobs within the discarded brands. CFO Jon Moeller estimated the company’s restructuring would take 12 to 24 months to complete. The move is expected to increase long-term shareholder value for the company’s investors. Even with Friday’s gains, shares of P&G have been largely flat since Lafley’s return, but the company does pay a healthy dividend exceeding 3%.
The brands P&G chooses to drop will be elusive products that are far from becoming household names: Alomatik, Dodot, Viakal and Rindex are a few that are likely on the cutting board.