Procter & Gamble Co. (PG) plans to exit its Duracell battery business as part of Chief Executive Officer A.G. Lafley’s efforts to slim down the company.
P&G will probably split the battery business into a stand-alone company and give shareholders the option of exchanging P&G shares for stock in the new entity, according to a statement today. The company also posted first-quarter profit that met analysts’ estimates.
Lafley has been streamlining the world’s largest consumer-products company by cutting costs, selling its pet-food business and starting the process of jettisoning as many as 100 slow-selling brands. The Duracell move shows that the effort is well under way, said Jack Russo, an analyst at Edward Jones & Co.
“It indicates they’re taking this whole new strategy seriously, the strategy of getting lean and mean again, back to their roots,” Russo, who is based in St. Louis, said today in an interview.
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P&G rose 2.3 percent to $85.16 at the close in New York. The shares have gained 4.6 percent this year, compared with a 6.3 percent advance for the Standard & Poor’s 500 Index.
The stock rose on the news of the Duracell separation rather than P&G’s first-quarter results, which were “nothing to write home about,” said Russo, who recommends buying P&G shares.
Net income fell 34 percent to $1.99 billion, or 69 cents a share, from $3.03 billion, or $1.04 a share, a year earlier, the Cincinnati-based company said today. Excluding some items, profit was $1.07 a share, matching the average of 21 analysts’estimates compiled by Bloomberg.
Slowing Growth
Both P&G and Colgate-Palmolive Co. (CL) are struggling with slowing growth in emerging markets. Colgate, based in New York, reported a drop in third-quarter earnings and cut its 2014 profit forecast.
Colgate’s third-quarter net income fell 17 percent to $542 million, or 59 cents a share. Adjusted earnings per share of 76 cents beat the average of analysts’ estimates by 1 cent. Sales were little changed.
P&G maintained its forecast that organic sales, which exclude the effects of acquisitions, divestitures and foreign-currency exchange-rate fluctuations, would rise at a low- to mid-single-digit percentage rate this year.
However, the company said net sales, which don’t exclude those factors, would be little changed or rise by a low-single-digit percent, hurt by “significant negative” effects of currency fluctuations in the current quarter.
Cost Savings
P&G also reiterated its projection that profit excluding restructuring charges, impairments and other items would increase by a mid-single-digit percent, while saying net income would fall as much as 5 percent from a year earlier.
“The quarterly profile of earnings will be heavily influenced by the variation of foreign-exchange impacts from period-to-period,” the company said in the statement.
First-quarter sales fell 0.2 percent to $20.8 billion, matching analysts’ average projection. Organic sales rose 6 percent in the company’s health-care business and 4 percent in the baby, feminine and family-care unit. Sales by that measure were little changed in the grooming division, the fabric and home care unit as well as the beauty, hair and personal-care business.
P&G said earlier this week that Melanie Healey, president for North America and a potential successor to 67-year-old Lafley, plans to step down in June. She’ll be replaced by Carolyn Tastad, who’s held executive positions in P&G’s cosmetics, fine fragrances and global prestige units.
‘Lackluster’ Innovations
Lafley has been working to cut $10 billion in costs through 2016 and plow some of the savings back into developing new products. Chief Financial Officer Jon Moeller said today on a call with media that the company expects to “significantly” exceed the goal.
P&G recently has introduced new Gillette Fusion ProGlide with FlexBall Technology razors and Always Discreet incontinence pads, and executives today said such items were helping to boost sales. P&G and other consumer-products makers have faced pressure to cut prices to lure shoppers reluctant to spend amid the choppy economic recovery.
While blockbuster products take time to develop, today’s results “offered the first signs that broad promotional spending may be subsiding and new products could be gaining some traction at the shelf,” Erin Lash, an analyst at Morningstar Inc. in Chicago, said in an e-mail.
Date: October 24, 2014