P&G sees signs that 'Lafley magic' is back
Under its old CEO who has returned to right a struggling ship, the consumer products giant is starting to recover.
Sadly, this isn't a case of media hype.
Lafley's tenure from 2000 to 2009 had many highlights, including the $53 billion Gillette acquisition in 2005 and the launch of hit products such as Febreze and Swiffer. The years since he handed the reins to Robert McDonald haven't been easy.The worst economic slowdown since the Great Depression didn't help. Neither did public complaints about P&G's strategy from activist investor Bill Ackman and the lack of a new blockbuster product.
Last year was particularly tough as P&G slashed thousands of jobs as part of a $10 billion restructuring. Its many critics, however, weren't satisfied because McDonald also cut his profit targets three times.
Signs, though, are starting to emerge that the "Lafley magic" investors are hoping for is starting to work. The company exceeded Wall Street's low expectations in its latest quarter. And Lafley is appealing to frugal consumers by offering lower-cost versions of P&G hits such as Tide laundry detergent, Bounty paper towels and Charmin toilet paper.
This is a smart, if overdue, move.
As The Wall Street Journal noted, the cheaper version of Tide will help P&G better compete against rivals such as Arm & Hammer parent Church & Dwight (CHD). Although the less expensive product could cannibalize existing sales of Tide, it's a risk worth taking. P&G can certainly use the help. Analysts are forecasting flat sales growth for the rest of the year.
But the time is right to buy P&G stock. Wall Street analysts have an average 52-week price target on it of $87, about 12% higher than where it recently traded. At least three brokerages expect the shares to hit $90. P&G's price-to-earnings ratio is about 19, in line with competitors such as Clorox (CLX)
Past performance is no guarantee of future returns, but Lafley has wowed Wall Street once, which is more than most CEOs do. There's no reason to think he won't succeed again.
Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.
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