Procter & Gamble May Need to Break Up, Bernstein Says

Procter & Gamble CEO Robert McDonald
Robert "Bob" McDonald, president chief executive officer of Procter & Gamble Co. Photographer: Ramin Talaie/Bloomberg

Procter & Gamble Co., the world’s largest consumer-products company, should consider breaking itself up if it doesn’t improve earnings this year, an analyst at Sanford C. Bernstein & Co. said today.

Procter & Gamble, based in Cincinnati, would have a market value of as much as $208 billion in a breakup based on 2013 earnings estimates, according to analyst Ali Dibadj’s sum-of-parts analysis. The company has a current market value of about $171 billion. A split would improve focus within the separate units, wrote Dibadj, a New York-based analyst at Sanford Bernstein.

Procter & Gamble, led by Chief Executive Officer Robert McDonald, said in May it would pull back on spending in emerging markets to focus on larger regions, where it has lost market share. The company will gain $10 billion in cost cuts and savings through 2016, Procter & Gamble said in February.

While Procter & Gamble now has “an appropriate strategy,” the company “hasn’t been successful,” Dibadj said in a telephone interview.

The lack of success may be related to the fact that the cost cuts were just announced, or to Procter & Gamble’s management or the macro environment, Dibadj said. “It could also be related to the fact that this company is just too complex,” he said.

“We believe the size and scale of our business offers competitive advantages and unique opportunities to win now and into the future,” Paul Fox, a spokesman for Procter & Gamble, said via e-mail.

‘Lost Share’

The maker of Tide washing detergent, Ivory soap and Bounty paper towels may gain more by accelerating sales within operating units and achieve greater focus in a split than it would lose in efficiencies, Dibadj said in the note. In the short term, Procter & Gamble’s strategy to enter emerging markets, reduce prices and free up cash for investments may help “right the ship,” Dibadj wrote.

McDonald, who took over almost three years ago, had previously laid out a growth plan of adding product categories and markets to help the company expand to 5 billion customers by 2015.

Investors may lose patience with McDonald if Procter & Gamble doesn’t show improvement next year, Dibadj said in the interview.

“The company has lost share, missed commitments to the street, missed commitments internally, and is in a much worse place than I think any of us would have anticipated,” Dibadj said. “Can you hoist that blame just on one person? No, but there’s always one person who’s ultimately responsible.”

The company’s current fiscal year ends June 30.

Procter & Gamble fell 0.3 percent to $62.57 at the close in New York. The shares have declined 6.2 percent this year.

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