P&G To Kill Olay Cosmetics

Faced with slowing sales and a costly acquisition of the Clairol hair care business from Bristol-Myers Squibb, Procter & Gamble today detailed the steps it would take to improve its performance in fiscal 2002.

According to A.G. Lafley, P&G’s chief executive officer, the company has rationalization plans for two key areas:

In fabric & home care, P&G is modifying its initiative plans and rationalizing capacity in laundry worldwide, including tablet capacity and laundry powder capacity in developing markets.

In health & beauty care, plans include the phase out of Olay cosmetics to focus on the successful, profitable Cover Girl and Max Factor businesses, and scale back of Secret in Western Europe.

For fiscal 2002, P&G said it remains comfortable with the guidance provided earlier. Core earnings per share are expected to grow at a rate that exceeds this fiscal year’s growth, but not yet at the company’s double-digit earnings growth target. Sales, excluding foreign exchange impact, should grow at a rate faster than the current year but not yet at the company’s long term growth target of 4-6%. Volume will be up in the low single digits. Foreign exchange is expected to negatively affect top-line growth by about 1%; however, continued currency volatility makes it difficult to predict. The estimates exclude any impact on results from the Clairol acquisition, the planned LLC with The Coca Cola Company, the Crisco/Jif divestiture or any accounting changes associated with goodwill.

Mr. Lafley also outlined the strategic choices required to accelerate P&G’s growth Focus on core categories — baby care, laundry, feminine care and hair care.

These are categories where P&G is #1 in global sales and market share, and where the company can consistently grow earnings at double-digit rates.

Develop faster growing, higher margin, more asset-efficient businesses with global leadership potential like personal beauty care and health care. These higher return businesses, including brands like Olay, Actonel and Crest, hold potential to be tomorrow’s leaders.

Focus on top countries and customers for growth. Growth will come primarily from developed markets for the next few years, with developing markets making an increasing contribution over time.

Mr. Lafley emphasized plans to get its business in Western Europe growing again. Efforts will be focused on core categories, big customers and big countries — UK, Germany, France, Italy and Spain. “We are not where we need to be in Western Europe, but we have the right leadership and the right strategies and action plans in place to drive stronger, more profitable growth,” Mr. Lafley said.

“We’re focusing on our big brands, both the ones that are big today and the ones with potential to be big in the future,” Lafley continued. “We’re shifting our mix to categories with higher growth, higher margins. We’re focusing on big countries in both developed and developing markets. And we’re focusing on our biggest global customers. All these choices form a solid platform for both top and bottom line growth.”

The company provided an update on its Organization 2005 restructuring program, initiated in June 1999 to streamline the company’s operating structure and accelerate top line growth.

The company said the initial program remains on track versus expectations for both costs and savings. An expansion of the program announced in March of this year covers a significant reduction in enrollment, and portfolio choices to scale back or discontinue under-performing businesses and initiatives. The company said it expected the enrollment reductions to result in charges of $1.4 billion, with $600-700 million in after tax savings by fiscal 2004. The majority of the charges and about one third of the annual after tax savings are expected to occur next year.

The anticipated charge for the portfolio choices portion of the program is about $900 million, somewhat higher than the $400-800 million range indicated in March. The company said the increase results from not getting full tax relief in many developing countries. Roughly two thirds of the projects are in fabric & home care and paper; most of the balance is in health and beauty care. About $650 million relates to asset write-downs and other non-cash charges. Only $250 million is cash. This is expected to yield cash savings of about $100 million annually beginning fiscal 2002.

For the April-June 2001 quarter, the company expects restructuring charges to total $1.2 billion after tax. This includes $200 million from the initial program, $200 million from the enrollment reductions portion of the expanded program, and $800 million from the scaling back and discontinuation of under-performing businesses. This will result in a loss in reported net earnings for the quarter.

Commenting on the restructuring reserve, Lafley said, “We must put tough issues behind us. We’ve raised the bar on success criteria and financial performance. We are not going to be as patient as we have been in the past. We simply must focus our people and capital where they can generate the greatest returns for shareholders.”