P&G Results Buy Time For Embattled CEO
Despite losing market share in most of its businesses, the Legion of Embattled CEO Watchers seems to agree that Procter & Gamble’s Bob McDonald bought himself more time at the top yesterday when the company released fiscal first-quarter 2013 results that “easily hurdled what many analysts considered a conservative forecast,” as the Wall Street Journal’s Paul Ziobro puts it. And market share is trending in the right direction, particularly in the home market.
“During the three months ending Sept. 30, the company said that it held or grew market share in businesses representing over 45% of its revenue during the quarter, up from 30% in the fourth quarter. That jumped to nearly 60% in the U.S., up from 15% in the fourth quarter,” reports the AP’s Mae Anderson. “Its market share is still slightly down globally, but the company expects global market share gains by the second half of the year.”
Shares were up 2.9%, closing at $70.07 after reaching a four-year high of $70.83 earlier Thursday.
The company is “putting a fresh focus on productivity, including adding a new global officer of productivity and organization transformation who will report to McDonald, as well as creating a productivity council of senior managers,” writes Reuters’ Jessica Wohl.
In the Wall Street Journal’s “Corporate Intelligence” blog, Tom Gara calls the new position “job cutter in chief” and points out that there’s a lot of that going around: “These are not good times to be an employee in a consumer goods business: also reporting earnings today was Colgate-Palmolive, which said a cost-cutting program of its own would cut about 6% of its global workforce of 38,600 people, or a little over 3,200 jobs.”
McDonald told analysts on a conference call that he wants to embed “a culture of productivity in the company that's equal to our culture of innovation.” To support the latter, P&G “plans to ramp up marketing support behind new products being introduced later in the year,” Wohl reports. Because of that, and an explosion in a factory in Japan that supplies absorbent material for its $10-billion Pampers diapers brand, the company did not raise its profit forecast for the fiscal year.
Morningstar analyst Erin Lash says the results are “a step in the right direction” but cautions that the company “has a long way to go down the road of driving sustainable improvement,” signaling out its lackluster growth in China.
“In our view, the tenure of the current management group could be cut short if steps forward aren't realized sooner rather than later,” Lash writes, “and we foster some concerns that P&G (which tends to promote from within) may not have anyone to fill the top spot if it were to become vacant, given that several senior executives have headed for the exits over the past several years.”
The tenure of top management has been a public topic of discussion since activist investor Bill Ackman took a $1.8 billion stake in the company last summer and called for McDonald’s head, as Alan Rappeport reports in the Financial Times. “Big investors have also expressed disappointment with P&G’s recent performance, led by Warren Buffett, whose Berkshire Hathaway has been trimming its P&G holdings,” he writes.
Earlier this week, the Wall Street Journal’s Emily Glazer and Joann S. Lublin broke the news about a negative 13-page letter sent in April to P&G's lead independent director, Boeing CEO Jim McNerney. It was signed by Gary Martin, a former president of family care at P&G who retired in 2001, and claimed to “have the support of many current and former executives.” In reportedly critiquing McDonald’s leadership, it called on the board to split the CEO and chairman responsibilities.
The P&G board “restated” its support for McDonald late last month, as Cincinnati.com’s Lisa Bernard-Kuhn reported.
“It’s almost like the presidential election,” Matt McCormick, a portfolio manager with an investment firm that manages about $5 million in P&G shares, told Bernard-Kuhn. “Ackman represents one side and McDonald has the other. They both think their ideas are right, and they’re each vying for votes. Ultimately, this is going to come down to results and which side has the best vision to get the stock higher.”
Yesterday, P&G CFO Jon Moeller told analysts that conversations with Ackman “have been ‘good’ and that the company shares objectives with him,” Market Watch reported in a short piece on P&G’s midday gain leading the 30 stocks in the Dow Jones Industrial Average.
McDonald clearly triumphed yesterday but, unlike the presidential contest, the results don’t guarantee anywhere near four years in office. ““The positives will help management’s credibility, but the company will need to demonstrate further consistent execution before fully convincing skeptics,” Well Fargo analyst Tim Conder writes in a note cited by Bloomberg Businessweek’s Lauren Coleman-Lochner.