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P&G to focus on core brands

In a move to streamline and simplify Procter & Gamble’s business and brand portfolio, the company will trim its brand portfolio to focus on 70 to 80 of its largest and best-performing brands, A. G. Lafley, president and CEO, told analysts on Friday during its fourth quarter conference call.

In the next 12 to 24 months, P&G will “harvest, partner, discontinue or divest” 90 to 100 brands, whose sales have been declining 3% per year over the past three years. Profits have been declining 16%.

“The strategic narrowing and refocusing of the brand portfolio will have a number of significant benefits mutually reinforcing. Seventy to 80 brands will bring clarity, focus and prioritization and simplicity to a smaller, more integrated, better coordinated organization,” Lafley said.

At least one industry observer viewed the moved as “a long-term positive.”

“While it seems like a sea change given P&G will only be left with 70 to 80 brands, these divested brands represent only 10% of sales and 5% of profits, and P&G had already indicated it would divest up to 10% of sales,” said Morgan Stanley analyst Dara Mohsenian in a research note. “Still, we view this move as a positive, as it will result in simplification for P&G when completed over the next 12 to 24 months, and a higher growth/higher margin portfolio as the remaining brands have outgrown P&G’s portfolio by 100 bps on the top-line and 100 bps in pre-tax margins over the last three years.”

Mohsenian noted that P&G is divesting a broader portfolio of brands than expected and that, while other companies could buy some brands, most potential divested brands are small and declining, which could limit the interest.

In looking to Euromonitor’s data, leading brands that will remain in P&G’s portfolio, according to Mohsenian, include Tide, Gillette, Olay, Crest, Pantene and Pampers.

As Lafley told analysts, the remaining 70 to 80 core brands are leaders in their industry category or segment, with 23 of them bringing in sales of $1 billion to $10 billion, another 14 with sales of $0.5 billion to $1 billion, and the remaining 30 to 40 with strong brand equities in sales of $100 million to $500 million.

“These brands are well positioned with consumers and customers and well-positioned competitively. These brands have strong equities in differentiated products and a track record of growth and value creation driven by product innovation and brand preference,” said Lafley. “These brands are core strategic and have very real potential to grow and deliver meaningful value creation.”