Commentary

McDonald Feels The Heat As P&G Lowers Forecast

Bob McDonald no doubt feels Ann Curry’s pain, and vice-versa. Both are personable achievers who stepped into the top spot at their respective franchises at a time when they were humming on autopilot only to find their jobs in jeopardy this morning as results have faltered.

Curry is said to be negotiating with the suits who want to replace her as Matt Lauer’s co-host on “The Today Show” a little more than a year after she stepped in for Meredith Viera. ABC’s “Good Morning America” has beaten the longtime audience leader in weekly ratings lately even as Curry finds that her “dream job” sometimes “conflicts with her journalistic interests,” Brian Stelter reports in the New York Times.

Murmurs about replacing McDonald at Procter & Gamble, meanwhile, are being amplified in media reports. Sanford C. Bernstein analyst Ali Dibadj, who called McDonald “an extraordinarily capable leader" when he was named to replace A.G. Lafley in 2009, suggested in a research note that the company should name a successor if its performance doesn't improve, the Wall Street Journal’s Emily Glazer and Géraldine Amiel report

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"If there is another lowering of the bar, I'm not sure if this management team has a lot of longevity," Dibadj tells Reuters’ Brad Dorfman and David Jones. 

At an investor’s conference in Paris yesterday, McDonald delivered a West Point-educated guess as to where that bar will sit when P&G formally announces its earnings for the April – June quarter. Sales will probably be down 1% to 2% from a year earlier, compared with a previous forecast of 1% to 2% growth; core earnings will be in the 75 to 79 cents a share range as opposed to a projected 79 to 85 cents.

A company press release issued concurrently with McDonald’s appearance was minimally rosier about the coming fiscal year. Organic sales are expected to increase in the range of 2 to 4%, it says, and core earnings per share “are expected to be in-line to up mid-single digits percentage versus fiscal 2012 results.”

What gives? Dorfman and Jones point to a “lack of innovation from a company that used to develop whole new categories, such as the Swiffer floor mop in 1999 and the Whitestrips tooth whitening product in 2001.”

"We haven't created a new category or a meaningful new brand in some time," McDonald admitted. Both he and the company press release promise to focus, focus, focus.

“To achieve its objectives, P&G said it is prioritizing investments in its biggest, most profitable markets, on its biggest innovations and in its biggest emerging countries,” reads the release. “In addition, the company clarified that it intends to maintain strong investment levels in markets it has recently entered.”

"The entire P&G organization -- and specifically its leadership -- is committed to winning,” quoth McDonald. 

The focus will be on P&G’s 40 core businesses – “each one defined as a product line in a certain country, such as Tide detergent in the U.S., Pampers nappies in the UK and Olay skin cream in China,” report the Financial Times’ Barney Jopson and Duncan Robinson, who add that the list includes 13 businesses in the U.S., six in China and some in Russia and Brazil.

It will also “focus on more competitive pricing after its products became relatively more expensive in some markets as it increased prices sooner than competitors,” Clementine Fletcher and Lauren Coleman-Lochner McDonald report in Bloomberg Businessweek.

While McDonald is well-liked within P&G, he may be losing the troops. Former employees says his “effort to speed up the process of bringing new products to market has collided with a deliberative culture infamous for its bureaucratic management layers, stringent consumer case studies and iconic one-page memos,” WSJ’s Glazer and Amiel write.

Credit Agricole Securities analyst Caroline Levy tellsForbes’ Scott Gamm that P&G is flat-out “too big to manage” and it doesn’t “just need one home-run product, but rather six big hits -- one in each of the company’s categories in order to move the dial.”

“If P&G spun off its beauty business, it would be two times the size of Estee Lauder,” Levy observes.

Citi Investment Research analyst Wendy Nicholson says that the company’s struggle with market share growth is "discouraging," but she took away some positives from McDonald’s presentation, report the AP’s Mae Anderson and Michelle Chapman. 

"P&G is clearly saying 'no excuses' and adopting a more aggressive stance about taking responsibility for and fixing their problems," Nicholson wrote in a note to investors. 

P&G’s press release promises to “improve the consistency of execution in all facets of its operations.” But if it doesn’t, and the punditocracy is correct, we may soon be witnessing a different interpretation of execution in Cincinnati.

2 comments about "McDonald Feels The Heat As P&G Lowers Forecast".
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  1. Robert Wright from iAsk , June 21, 2012 at 8:44 a.m.

    Hi Thom,
    P&G are doing the right thing by taking personal responsibility... The easiest way they can fix their problems is by understanding what had to be true for them to take their approach in the first place. It is the context of operation which needs to be questioned, and I believe that this is what they will be doing. / Robert

  2. Thomas Fox from Andrew & Ally's Restaurants, Inc., July 5, 2012 at 9 a.m.

    I can only speak to my personal experience with P & G Products. P & G's increased retail pricing, decreased package sizes (Ivory Soap) and what appears to be fewer promotions & couponing(Tide), affect my purchase decisions. Who didn't notice the smaller bars of Ivory soap and increased retail pricing on several brands including Tide? It's the exact wrong time to be making these types of decisions and to expect no negative impact.

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