Procter & Gamble Co Earnings Call Insights: Organic Sales Growth and Value Creation

Procter & Gamble Co (NYSE:PG) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Organic Sales Growth

John Faucher – JPMorgan: A quick question for you. Historically you guys have talked about revenue growth 100 basis points I think ahead of the market. So, if we look at your organic sales growth guidance this year, it is more sort of an in line number. Then when you factor in, you are dropping a decent amount of the productivity to the bottom-line. Can you talk about maybe why you are not spending more to maybe get a little bit more market share given the growth of the category? So, what’s driving the decision in terms of dropping more to the bottom line versus potentially spending it back?

Jon R. Moeller – CFO: John, we will continue as we have good opportunities to drive return and create value to invest behind innovation, as A.G. mentioned, behind go-to-market capability and advertising where we can generate return. As I have said many times before, cost savings is not the objective, value creation is the objective and we will not follow cost savings out of the window at the expense of capability and opportunity of which we have many.

A.G. Lafley – Chairman, President and CEO: John, two quick points; past five years two, three, three, three, three; most recent quarter, four. So, if you are going to see things as they are, we’ve got to demonstrate we can grow faster, point number one. We are prepared to invest to grow faster. With clearer strategies, we’ll make investments where the size of the price is attractive and where we think we have the plan to win. Second point, this is our external commitment. We have internal goals.

Value Creation

William Schmitz – Deutsche Bank Securities: You talked about the deep dive that you did. Can you just talk about what you think that P&G was doing wrong during the period? Then maybe what you are going to stop doing. Then maybe empirically like how you are going to define success going forward maybe try to put some numbers around it?

A.G. Lafley – Chairman, President and CEO: I’d like to take a couple of minutes here to step back because this is an opportunity to talk about strategy I think at the Company level and at the business unit level. The quick answer to your second question or second part of your question, Bill, is value creation. And the first place we got to create value is for more consumers, more consistently with our brands and product offerings, and then the second place we have to do it is for the Company and for shareholders and that’s a balanced mix of net sales growth, gross and operating margin growth and cash productivity. If I may on the strategy at the business unit level, we want to be more choiceful, clearer. We want to be more focused, and we want to be really clear about our priorities. We want to be very specific about what is winning for the business unit with consumers to create value. We want to be very specific and prioritize where we’re going to play. We are going to be much more specific about our business model, how we are going to win and we are going to get really clear in our core strengths not just how we leverage the core strengths that the Company has or what very specific and particular core strengths we need to win in that industry, okay, with that market. So that’s really the focus at business unit level. Get more focused to get clearer set of priorities and then operate with discipline and execute with excellence. At the Company level, the keyword is balance. You’ve followed this Company, many of you followed this Company and this industry for a long time, and when we have a pretty good decade, three things happen. We grow the value of our core businesses, whatever our core is at that time. We find at least one major new business that we can turn into core; Baby Diapers in the 60s, Tissue and Family Care in the 70s, Feminine Care in the 80s, Hair Care in 90s, arguably we got home and Oral Care, and Family Care back into the core fold, the team did over the last decade. And we made some progress creating cores in the Skin and Prestige Beauty and we bought a shaving business which is core. So, that’s the second leg of the stool. The first leg of the stool is you grow the value of your existing core. The second leg of the stool is you find some new core, and the third leg of the stool has been moving into new space. Generally, we talk about geography, but it’s also included channels, okay? If you really look at the history of the Company, we’ve found new geography and we’ve also found new channels, okay? But we need to do all three. We need to grow from the core. We need to accelerate growth into faster growing, higher margin, more structurally attractive. That means less capital intensive, less competitively concentrated industries, and we need to extend into emerging markets. We’re just trying to get that balance back. As I said in my prepared remarks, generally winning in the core drives a surprising – the existing core drives a surprising amount of the value creation and actually a surprising amount of the growth each decade and here is the key. It’s what enables, okay. It brings us the capabilities, it brings us the cash, it brings us the human resources to extend into new industries and categories that can be core and to extend into new geographies and channels. So, we are just working hard to get the balance right. When you’ve got an $80 billion plus company that’s in 15 to 20 different businesses depending on how you count them, and the 100 plus geographies, balance is really important. The other thing we are doing is, we are taking a hard look at our core strengths. Again, as I said in my prepared remarks, we’ve got to turn productivity into just as strong a strength as innovation because those are the two biggest drivers of value creation in the P&G business model. We have got to turn operating with discipline and executing with excellence into a core strength just as we turn (indiscernible), sharpen the strategies into a core strength. We still have to have deep understanding of consumers. We still have to be able to create brands and build them forever, if we can. We still have to be the innovation leader in the industries and categories we choose to compete in, and we still have to have our go-to-market capabilities and grow them and we try to create as we go along some scale. So that’s really where we are focused. We are focused on balancing, getting crystal clear about what is winning. Balancing with where to play and taking a hard look at the core strength. So, again, we have a balanced set of core strengths to go forward. We’re locked on it. I think at the Company level, all that’s left to do is, get the expression in the fewest possible words, which is a burden that Jon and I will predominantly carry in the next couple of days. At the business unit level, as you might imagine, we’re just grinding our way through one business at a time. We’ve been through them all once. We’ve been through their operating plans and budgets for the next year, which is another shot at them, and now we’re doubling down and working real hard where we think we have the most opportunity, either the most upside opportunity or the most production opportunity. So, I hope that helps because I think it’s really important to understand, balance at the Company level, three legs on the stool core, totally new businesses where we can play to our strengths and hopefully create new core and new space, okay. Right now, the biggest opportunity in new space happens to be developing markets, which are demographically and economically advantaged. But it’s also e-commerce, okay. So, like I said, I hope that’s helpful. That’s what we’re trying to do. Now, of course, we can execute.

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