JPMorgan
A.G. is coming back. We think the return of former CEO A.G. Lafley will be viewed positively, as the market was pleased with the company’s overall performance during his tenure. After taking The Procter & Gamble Company (NYSE:PG) through the “blow up cycle” back in 2000-2001, A.G. oversaw a reacceleration in Procter & Gamble’s top line growth and market shares over his tenure. Earnings growth outstripped peers, and the stock rallied aggressively. While A.G.’s strategy of premiumization ran into trouble in the last few years of his tenure as the global economy worsened, leading to negative EPS revisions, his overall performance should help boost investor confidence.
EPS guidance stays the same. The Procter & Gamble Company (NYSE:PG) is reaffirming EPS guidance, for now, which makes sense given the visibility from productivity, and the relatively anemic top line guidance (and performance) for the year. At this point, we can’t rule out some incremental investment in beauty care in FY14, but with ad/sales having gone up, we think there is not likely to be a big step up.
Succession planning moves to the fore. With A.G. returning to the helm at age 65, there is little doubt that finding a successor will be one of his most important tasks. While we don’t think A.G. should be viewed as an interim CEO, we doubt his tenure will be lengthy. There will likely be much hue and cry from investors to consider outside candidates as the next CEO, but we find that highly unlikely. The company’s promote from within strategy is very ingrained, and we can’t see it ending just now.
Any big changes? While Procter & Gamble was the slowest of our companies to embrace productivity in the post-recession environment, we think the focus could actually improve from here. Furthermore, we think there could be some changes to the organizational structure (although stopping short of moving back to a regional P&L structure that we would like to see), to try and get a better balance of short and long-term growth.
Is there something more ominous? At this point, we think not. The biggest risk right now is that the board saw some looming problem ahead that needed A.G.’s attention to fix. We do not believe that is the case. With productivity in place, PG’s problems are more focused on driving better innovation and better coordination between GBUs and MDOs. In our opinion, these are not massive problems, but rather the difference between 3% and 4-5% organic revenue growth.
BAML
Lafley II to begin immediately P&G announced A.G. Lafley as Chairman, President and CEO. Lafley served as CEO of P&G from 2000 to 2009, a tenure that was broadly considered quite successful. Lafley will succeed embattled CEO Bob McDonald, who will retire after 33yrs with Procter & Gamble. This move is a positive; Lafley should quickly be able to provide leadership and guidance, with a strong reputation both inside and outside P&G. With Lafley approaching his 66th birthday, we would not expect this to be a typical P&G CEO tenure, but this also seems clearly to be more than an interim role. This should also ultimately provide a bridge to the next generation of leaders.
Timing is everything
Lafley is being appointed as a CEO for the second time (Lafley succeeded Durk Jagr in 2000). While not the original architect, Lafley implemented Procter & Gamble’s Organization 2005 restructuring program, including the current GBU/MDO matrix structure. Lafley’s legacy has included driving a robust premiumization in key categories in developed markets, growing the China business to scale, and acquiring Gillette in 2005. Lafley’s final two years at P&G were characterized by lower ad spending and aggressive pricing to manage for commodity inflation and US$ strength, as well as slowing growth in the face of macro pressure.
See A Rising Tide is a Good Gamble – Ira Sohn Conference 2013 Bill Ackman
Morgan Stanley
While Lafley had a very successful prior tenure at The Procter & Gamble Company (NYSE:PG), critics may argue that the end of his tenure was not as successful given at the time of his departure Procter & Gamble was under-exposed to emerging markets, had made a number of acquisitions that were less successful than originally expected (Clairol/Wella/Gillette), and PG’s premium priced focus was ill-suited for a post recession 2008 environment. While these points are not unfair, in our minds this CEO change is a significant positive as Lafley’s tenure was clearly very successful in aggregate, Lafley has experience executing a successful PG turnaround, and a change was necessary at Procter & Gamble in our minds given recent underperformance. We do note that the key hallmark of Procter & Gamble’s success under Lafley (trade-up in developed markets) is unlikely to occur again in a more difficult consumer spending environment.
