In this case, “paying dividends” should be taken quite literally.
Procter & Gamble has paid an annual dividend for 129 consecutive years. Moreover, it has raised its dividend for 63 consecutive years — most recently, by 4% in April.
Over the past 10 years, the annual dividend has increased from $1.64 per share to $2.90 per share. That’s up nearly 80%, returning $67 billion of cash to share owners. And analysts say that the company is likely to be able to continue to grow its dividend by 3% to 5% annually through at least 2024.
Which is not to say that the company hasn’t gone through bad times, as well as good. In fact, until recently, P&G was struggling with stagnant sales and unimpressive profit growth.
P&G’s top-line sales had been down about 4.5% over the past five years. But — with some strong encouragement from activist investor/board member Nelson Peltz — it’s been restructuring for about the same number of years now. And even as the company prepares to take restructuring to a whole new level starting this month, those ongoing efforts have started to pay off.
P&G beat expectations in its third fiscal quarter ended in April, with sales growth of 1.1%, to $16.5 billion, and profits up 9.3%, to $2.7 billion. In the prior-year period, the company had posted $2.5 billion in profit on $16.3 billion in sales.
Through the third quarter, sales were up 3% in the U.S. and 10% in China. Ecommerce sales were up more than 20%, to represent 8% of total sales. Eight of P&G’s 10 global categories, and 33 of its top 50 country category combinations, are holding or growing share.
For its full fiscal 2019, P&G is projecting flat to 1% all-in sales growth (including negative foreign exchange and acquisition and divestiture impacts), and notably healthy organic sales growth of 4%.
“Our focus on superiority, productivity and improving P&G’s organization and culture is delivering improved results despite a challenging competitive and macroeconomic environment,” summed up CEO David Taylor, in announcing the results.
At last month’s Deutsche Bank’s dbAccess Global Consumer Conference, Jon Moeller — a 30-year P&G veteran who was promoted from CFO to COO and vice chairman as of July 1 — elaborated on how the company is focusing on organizational simplification, and three other strategic principles: superiority in products/execution, productivity and the capstone, “constructive disruption.”
“We’ve been completely disrupting P&G,” Moeller stressed. “Each of these drivers is required to win in a highly dynamic and competitive environment. [Brand] superiority and making productivity “as integral to our culture as innovation” are critical, but insufficient to keep P&G ahead “in a world with a rapidly changing retail environment, quickly evolving consumer needs, media ecosystem transformation, revolutionary changes in technology,” he said. “We must, and are, leading the constructive disruption of our industry across all areas of the value chain.”
The strategies “reinforce and build on each other — they position us well within our industry to deal with near-term challenges from macro headwinds, trade transformation and anticipated competitive response, and they are the foundation for stronger balanced growth and value creation over the short, mid and long-term,” he summed up.
New Business Units Structure Kicks Off
P&G has long operated on a matrix consisting of global business units, sales and marketing organizations, and corporate functions.
As of this month, to strengthen focus, accountability and agility, it has shifted 60% of its corporate employees into six “sector business units”: beauty, baby and feminine care, fabric and home care, family care, grooming, and health care. Each unit has its own CEO with profit-and-loss responsibility and oversight of the unit’s products from development through sale. Collectively, they will oversee 80% of P&G’s sales and 90% of its profits.
The company is focused on strengthening 10 “daily use” categories, in which performance drives brand choice. These are categories where P&G occupies a No. 1 or 2 position, and have historically grown faster and more profitably than the rest of the company.
Within those categories, P&G has invested in achieving superiority in products and packaging, brand communication, retail execution and value advantage, he said — and “the benefits of those portfolio choices are clearly playing out.”
For instance, P&G’s U.S. Fabric Care category, which has grown 500% over the last 40 years (versus quadruple growth for the market as a whole), has recently managed to gain another five share points, he reported. That’s thanks largely to aggressive growth in “meaningfully superior unit dose” detergents, including Tide Pods and Gain Flings. Those now generate nearly 20% of category sales, with P&G holding an 80% share. Another upgrade — enabling cleaning and stain removal in quick, cold washes — has delivered an additional 15-point advantage over previous unit-dose offerings.
In fabric care, skin and personal care, home care and other categories, P&G is “addressing the needs of ecommerce through ship-in-own-container -- executions that enable a direct shipment from P&G to retailers and to consumers without the need to manipulate the package,” he reported. “It’s a more appealing execution with less packaging, a more sustainable solution.”
For consumers, the formula for success is “a product that meets an important need in a noticeable and superior way with a package that's convenient to use, with compelling communication, presented in a shoppable way at a compelling price,” he said. “For [retailer] customers, margin profit, trip generation, basket size and very importantly, category growth” are what build strong partnerships and expanding opportunities.
Here are a few more highlights from Moeller’s example-packed presentation (with an assist from Seeking Alpha) of its emphases and changes, with emphasis on points of likely interest to marketers.
Advertising that elicits thought, emotions: “We strive to communicate product and packaging benefits with superior brand messaging, advertising that makes you think, talk, laugh, cry, smile, act and of course buy,” said Moeller. “Advertising that drives growth for categories and brands, advertising that clears the highest bar for creative brilliance, sparking conversations, affecting attitudes, change in behaviors and sometimes even defining popular culture.”
Indeed, P&G’s “It’s a Tide Ad” won this year’s Grand Effie Award.
Agency and other marketing savings: The world’s largest advertiser certainly has disrupted the advertising industry with its radical consolidation of agencies and shift to in-house capabilities.
In January 2018, it announced that it planned to cut its agency roster by another 50%, after already cutting the number from 6,000 to 2,500.
Moeller’s update: “We're eliminating substantial waste in the media supply chain, surpassing $1 billion in savings and agency fees and production costs over the last five years. We see more savings potential in these areas, along with more efficiency in media delivery. We're taking steps to reinvent the media supply chain and how our brands work with agencies and we're pioneering new approaches to continually improve our brand building.
“With our access to data and analytics and experienced purchasing professionals, we're bringing more media buys in-house. We're returning to one-stop shops where it makes sense, reuniting media and creative. We're implementing new agency models such as fixed-and-flow, where we invest a fixed amount for work that requires experienced creative resources like big campaigns, supplemented with a flow-to-the-work approach through open sourcing, as needed.”
In China, Moeller said, P&G has saved 30% of non-productive digital spending, while increasing the number of people reached by 60%.
“Eighty percent of our media is now digital, and 30% of our sales are in ecommerce,” he reported. “We have one of the largest data management platforms in the country, which we use for performance analytics and to direct-buy most of our digital media. Real-time behavioral data enables us to do propensity modeling at half ad frequency and engage people where and when it matters.” All of which has contributed to 10% fiscal year-to-date growth in the country, he said.
Focus on superior in-store and online execution: P&G doesn’t settle for less than “the right trade coverage, with the right product forms, sizes and price points and the right in-store or online presence and merchandising execution, delivering against key business drivers for each category and brand and every store across all channels every day,” declares Moeller.
Innovative in-store strategies have driven significant sales growth in Russia, Spain and other regions, as well as China.
Investing in innovation, new-product innovation: P&G Ventures is an internal startup studio that works with entrepreneurs to create new brands, technologies and business models.
Brands that have been created within P&G Ventures that are in “learning market” phases include an insect killer sans harsh chemicals (Zevo), a digital device for optimizing older complexions (Opté ), and a botanical product for chronic skin conditions (MetaDerm). In February, P&G partnered with M13 to open a “build studio” to accelerate the growth of selected P&G Ventures brands.
“We're disrupting the way we innovate by accelerating the speed and quality of our learning through lean innovation,” Moeller summed up.
Moeller says that P&G is fully aware of the need to not just maintain, but accelerate, its intense, focused initiatives.
“We're not winning everywhere,” he acknowledged. ”We still face significant challenges and continue to operate in a difficult competitive and macro landscape. But we are making clear progress.”