New CEO: P&G will adapt, doubles down on cuts

BOCA RATON, Fla. - Procter & Gamble CEO David Taylor says there are still “huge opportunities” in the company’s productivity efforts as the company announced Thursday it was “doubling down” on cost cutting.

The downtown Cincinnati-based consumer products giant said it will cut another $10 billion in costs over the next five years.

The announcement came four years after P&G first said it would slash costs by $10 billion, which the company now says it is ahead of schedule to achieve.

On the job less than four months, Taylor also pledged to transform the company culture to boost productivity and to fix the company’s sales operations in China. China is P&G’s No. 2 market, but sales there have lagged.

Speaking publicly for the first time since he took the helm, Taylor told a roomful of analysts the company has underperformed expectations. Chief Financial Officer Jon Moeller, who disclosed the cuts, said the company is committed to delivering both sales and profit margin growth.

“We know we haven’t been delivering,” Taylor said. “We aspire to be the best. Doing so, we have to raise the bar. ... P&G is ready to adapt, evolve and change in order to win.”

The company did not unveil any new job cut targets with the announcement, with executives indicating much of the trimming will come from its production pipeline and marketing.

Taylor’s remarks were made at an investor conference here.

Taylor became P&G’s CEO on Nov. 1, replacing A.G. Lafley, who now serves as executive chairman. Lafley did not participate in the forum. P&G’s first $10 billion restructuring was announced at the Florida conference in 2012.

Since 2012, P&G has greatly expanded the scope of cuts, slashing more than 20,000 jobs so far. The pending Duracell sale and spinoff of brands to Coty will remove 2,700 and 10,000 jobs respectively from P&G’s payroll.

By mid-2017, P&G will employ 95,000 to 98,000 worldwide. Between cuts and brand sales, P&G is on track to have its smallest workforce since at least 2003 and possibly since 1991.

In recent years, P&G has begun shifting North American manufacturing to larger plants that are outfitted to produce more goods for multiple business units. As a result, P&G has expanded factories in Utah and North Carolina and is building a mammoth new facility in West Virginia, while shuttering plants in Georgia and Puerto Rico.

Taylor and Moeller indicated Thursday the company could do the same in Europe and elsewhere in the world.

The executives also talked about how P&G has also slashed advertising spending as its restructuring deepened. The company spent $7.2 billion in the fiscal year ended June 30, down $1 billion from 2013, with $700 million in cuts occurring in the latest year. Moeller noted the company has cut the 6,000 worldwide number of marketing agencies it works with by 40 percent.

Company officials say they are reinvesting the savings back into new products and smarter and more digital advertising. Taylor told the analysts Pantene’s recent “I Got a Dad-Do” received 1.8 billion impressions from social media. The ad ran during the Super Bowl, but only in a handful of selected markets, not nationally.

Taylor said the company has to transform P&G’s culture to improve the company’s results. In the past, the company has groomed rising talent with a succession of rotating assignments in different business units, which resulted in parts of the operation being run by less-experienced managers. He pledged to slow that down to increase institutional memory and talent.

He said there has been a perception among young talent that they needed to move around during their first decade with the company to get ahead.

“It’s a misnomer. I spent my first 17 years in one category and I did just fine,” Taylor said.

Taylor also said P&G will emphasize hiring outside talent “as needed” to fill more roles. While the company’s promote-from-within is legendary, he noted the company has for years brought in experienced talent to staff legal, technical and tax positions, but broaden that approach. He noted P&G’s over-the-counter health care unit has staff that didn’t begin their careers at P&G.

Further, Taylor said P&G will adjust bonus pay, tailoring compensation to specific business unit goals to motivate improved performance.

P&G executives also said they are working to turn around the company’s China operations that generate $5.7 billion in annual sales. While P&G has been hammered by foreign exchange rates that will shave $5 billion off annual sales ending June 30, Taylor admitted the company had made mistakes in positioning itself too downscale with consumers in China. The country’s middle class and its appetite for premium products continue to boom. A sign of this mismatch between consumers and P&G’s product offerings is that none of its top categories is growing users in China, Taylor said.

“We looked at China too much as a developing market,” Taylor said, adding the company has a stream of newer, premium products being introduced by brands ranging from Oral B dental brushes to Pantene shampoo. Those product introductions will continue into 2017, he said.

P&G is also in the midst of closing multiple deals to sell off or exit nearly 100 brands, intended to focus on core businesses. The company’s sale of Duracell batteries to Warren Buffett’s Berkshire Hathaway is expected to close by April. Later this year, 43 P&G beauty brands, including CoverGirl makeup, Wella and Clairol Nice ’n Easy hair coloring, will split from P&G and merge with New York’s Coty Inc.