Out in the wash

P&G boss A G Lafley fixing everything but growth

A G Lafley is fixing everything at Procter & Gamble, except for the lack of growth. A new plan to ditch up to 100 underperforming brands is the P&G chief's latest idea to boost performance, after cutting costs, exiting pet food and raising the dividend. Lafley is turning P&G into a leaner and more focused company. But his moves since coming out of retirement have yet to do much to address P&G's tepid sales.

The company's fiscal fourth-quarter results neatly illustrate the trend. Net earnings beat Wall Street analysts' estimates thanks to lower selling and administrative costs - a sign Lafley's cost-cutting is starting to take hold. Net sales, though, were worse than expected.

Since coming back last year to replace Robert McDonald, his profit-warning-prone predecessor who has just become US secretary for veteran affairs, Lafley has been pulling out the stops. He has refined a $10 billion, five-year cost-cutting plan announced by McDonald, sold the company's pet food brands, and pushed through a seven per cent dividend hike. Not that there's all that much to show for it: P&G's share price has stayed virtually flat.

Investors pushed the shares up about four per cent on Friday, suggesting they like the plan to kill or sell duff brands that account for just 10 per cent of the company's $84 billion of annual revenue and five per cent of profit. Shedding Trojan detergent, HiWash car wax and Pregnavit pregnancy vitamins - which are among the product lines analysts at Bernstein Research think could be sold - should simplify Lafley's push to reduce P&G's factory footprint from nearly three dozen far-flung facilities to a smaller number of factories that can produce multiple products. It should also bring better management focus.

But it doesn't directly address the bigger problem of weak top-line growth in an increasingly commoditized industry where companies are being forced into damaging price wars just to hold on to market share. Lafley is arguably making the best of a situation that was probably worse than he realized when he agreed to come back and lead a P&G turnaround. But he has yet to broach the more radical alternative - breaking up P&G. If this latest gambit fails to ignite the share price, he may come under more pressure to do so.