Analyst gives P&G turnaround plan the thumbs down

By Simon Pitman

- Last updated on GMT

Related tags Procter & gamble

Procter & Gamble has been downgraded by investment bank RBC Capital Markets following the announcement of the personal care player’s plans to kick start the business.

Analysts at the bank voted to downgrade P&G’s rating from ‘outperform’ to  ‘sector perform’, adding in accompanying research notes to the announcements that it had doubts over the management’s ability to execute plans to cut costs in an effort to get it back on a path to growth.

The bank’s notes on the P&G’s turnaround plans, entitled ‘Too Much Gamble, Not Enough Procter’, focus on the company’s inability to implement the changes, a factor that has been attributed to its top-down management style.

Can the 'missteps' be rectified?

"We no longer have the conviction that P&G can pull this off with near flawless execution,"​ RBC analyst Jason Gere wrote in the note.

"On paper, it sounds right and we agree with management's decision to focus on the core but we aren't certain that we have seen the end of missteps over the next year."

Gere also noted that the company may have to again resort to discounting its brands, a phenomenon that became widespread throughout the cosmetic and personal care industry during the economic downturn in 2009.

Cut back on spend in emerging markets

In May 2016 P&G CEO Robert McDonald announced that the company was planning to cut back on spending in the emerging markets to focus on the larger markets in an attempt to gain back some of this lost market share.

The company was forced to take this action after the results for the first quarter of 2012 showed a drop in profits, alongside shrinking global market share, which it attributed to focusing too much on emerging markets.

Aiming to save $16bn by 2016

McDonald estimates that its cost cutting measures will save the company approximately $10 billion in the three financial years up to 2016.

Although the analysis does not go into any specific details of the split, it could also be that the company may choose to divide its business up on geographic lines, moving away from a hierarchy that is focused around its Cincinnati headquarters, in Ohio.

Evidence of this has already been seen after the company confirmed in May that it was moving its beauty and personal headquarters from Cincinnati to Singapore, in the belief that it will be better placed to tap into growth in the faster expanding Asia Pacific region.

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