P&G Under Attack: Shareholder Activism

P&G, once known as the preeminent household products supply chain company, is under attack. On February 15, 2017 Trian Partners, led by Nelson Peltz, purchased over a $3 billion stake in P&G qualifying him for a seat on the board. In prior years Trian Fund Management LP  drove shareholder activism at PepsiCo and DuPont. The investment in P&G is their largest shareholder investment to date.

While P&G recently slashed costs and divested many brands (most recently Coty), global growth continues to be a struggle. Across the sector only Church & Dwight, and Clorox are beating the industry averages. P&G continues to be marketing-driven versus market-driven. Over the last decade, while the company invested heavily in the improvement of forecasting, the company lags industry leaders in the use of point-of-sale data. The historic competency in manufacturing is strong, but the evolution of outside-in processes to sense market opportunities and seize market share lag the competition.

Not the First Rodeo

In 2012 William Achman's Pershing Square Management LP invested in the company and called for a change in CEO. A year later A.G. Lafley returned as CEO, replacing Robert McDonald. Over the last two decades P&G spent $80 billion in acquisitions including Coty, Gillette, Duracell, and IAMS. The company is now selling off assets to focus on the core brands.  

A Focus on Growth While Streamlining Operations

Moving forward, growth is job one. While P&G powered growth through marketing and global expansion in the pre-recession years, recent growth slowed as customers shifted to e-commerce services like Dollar Shopping Club. P&G's focus continues to be on products, and less on the delivery of new business models. 

Table 1. Household Product Peer Group Averages for the Growth 2006-2015

Historically, Trian focuses on building core operations; cutting costs, and reducing managerial bureaucracy. As P&G grew through acquisitions, margins slid. While there is improvement in 2016, there will be continued pressure from Trian.

It is very likely P&G will no longer have the luxury to operate with ROIC 2-3X below Clorox and Colgate. The P&G results in Table 2 show the Company's greatest improvement in inventory turns, with growing gaps in growth, and ROIC. 

Table 2: Metrics That Matter Metric Performance for Household Products for 2009-2015

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