The Procter & Gamble Company (NYSE:PG)’s recent quarterly results were discouraging, with the company falling short on both sales and margin numbers. To arrest this decline, The Procter & Gamble Company (NYSE:PG) re-appointed A.G. Lafley as the new CEO. He has a great task at hand to revive the company’s fortunes and he has to stand up to high investor expectations. Let’s take a look on The Procter & Gamble Company (NYSE:PG)’s future prospects in detail.
Return of the former CEO
Lafley was quite successful in providing good results during his last tenure and created a strong reputation both inside and outside of The Procter & Gamble Company (NYSE:PG). He is familiar with the company and its investors. The company’s shares were up after the announcement that Lafley was returning. The sudden change in the top position has raised lots of questions about the company’s performance, however. We shall have to wait to see what the results coming out from his leadership are and where he is taking the company to.
Source: Google Finance, share price after Lafley’s appointment as CEO
$10 billion cost cutting plan
The company has in place a $10 billion cost cutting program. Under this program, The Procter & Gamble Company (NYSE:PG) will try to control its overall costs by cutting down on overhead costs, marketing spending and the cost of goods sold. It has already exceeded its plan of cutting down 5,700 jobs and removed 5,850 non-manufacturing employees. This program aims to cut down $10 billion in costs over a four-year period ending in 2016. This cost cutting will help the company to improve productivity and rapid expansion in both developed and developing markets. The company plans to utilize these funds for better marketing in North America and to build 20 new manufacturing units in emerging markets.
Restructuring
The Company has announced several changes in its management and has divided its entire business into four sectors. These sectors are “Baby, Feminine and family care,” led by Martin Riant, “Global Beauty,” led by Deborah Henretta, “Health and Grooming,” led by David Taylor, and “Fabric and home care,” led by Giovanni Ciserani. The company expects increased efficiency, better productivity and pointed brand expansion through this restructuring.
Procter and Gamble has also made changes in North America’s top management with the appointment of Dimitri Panayotopoulos as Vice Chairman and Melanie Healey as Group President of North America. This will help the company make concrete strategies at the business-unit level. This will also help it to better manage its portfolio of products under each segment. Through this division, the company can take on its competitors more directly.
Peer Analysis
Colgate-Palmolive Company (NYSE:CL), one of Procter and Gamble’s primary competitors, enjoyed good growth in Latin America despite the currency devaluation in Venezuela and inflation throughout the region. The company reported results for the first quarter of 2013 with earnings per share of $1.32, in line with the consensus estimate. Organic sales increased by 6% year-over-year against the consensus estimate of 5%.
The company is focusing on product innovation in different categories in both developed and emerging markets. Four new products will be launched under the whitening category, the “Colgate Max Fresh” brand, the “Elmex” brand and the electric toothbrush category. The company has relaunched its “Colgate Total” brand in Brazil and Mexico and is expected to launch it in other countries over a one-year period. The company has also relaunched its “Science Diet” and “Ideal Balance” pet food brands.
Another competitor, Unilever plc (ADR) (NYSE:UL), is planning to get a strong foothold in emerging markets. It has offered to extend its stake in its Indian subsidiary, and has also increased its sales and distribution reach in Indonesia. Such initiatives will help the company to achieve long-term growth.
Unilever plc (ADR) (NYSE:UL)’s new product launches across many categories and markets will help it to attract customers. Likewise, its “sustainable living plan” will help it to retain these customers as well as improve the efficiency of its business. I believe that the company is a good buy at these levels.
Conclusion
Procter and Gamble’s cost cutting program will help the company to gain share in a competitive market. It will help the company to get a foothold in the emerging as well as the developed markets. Investors have great expectations from its new CEO. If all the three strategies work well then Procter & Gamble will be able to win the race but it will take some time. As of now, I recommend a wait and watch approach for the stock.
The article Will a CEO Transition Help This Company to Regain Its Lost Ground? originally appeared on Fool.com and is written by Gayatri Sharma.
Gayatri Sharma has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble and Unilever. Gayatri is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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