The Procter & Gamble Company (P&G) boasts dozens of billion-dollar brands for home, hair, and health. The world's largest maker of consumer packaged goods divides its business into five global segments. The company also makes pet food, water filters, and over-the-counter acid-reflux medication. About two dozen of P&G's brands are billion-dollar sellers, including Always, Braun, Crest, Fusion, Gillette, Head & Shoulders, Mach3, Olay, Oral-B, Pantene, and Wella in the beauty and grooming segment, as well as Bounty, Charmin, Dawn, Downy, Duracell, Gain, Iams, Pampers, and Tide in the household care segment. P&G's hundreds of brands are available in more than 180 countries.
P&G has operations in some 80 countries worldwide. It generates about 39% of its revenue from its business in the US and Canada. P&G's remaining revenue comes from Western Europe, Asia, Latin America, and Central & Eastern Europe/Middle East/Africa (CEEMEA).
To support its US operations, P&G owns and operates 32 manufacturing sites across more than 20 states and territories. Additionally, it also owns and operates 100-plus production facilities in 40 other countries. Typically its domestic and international manufacturing sites produce products for multiple P&G businesses.
P&G operates its business globally through five segments -- Beauty; Grooming; Health Care; Fabric Care and Home Care; and Baby Care and Family Care. P&G began exiting the pet food business in 2014 with the August sale of its Iams, Eukanuba, and Natura brands in North America and Latin America to Mars, Inc. for $2.9 billion in cash. (The sale did not include P&G's pet food business in the European Union, for which it's seeking another buyer.) Mars plans to exercise its option to purchase P&G's remaining pet food business in some parts of Asia Pacific, the Middle East, and Africa.
The company's Beauty segment (which accounted for 24% of fiscal 2013 sales) makes and markets a variety of products, including deodorants, cosmetics, and skin care. The world's top facial skin care brand, Olay enjoys a 10% global market share. The Beauty segment also holds leadership positions worldwide in the hair care and color market, boasting a more than 20% global market share across its Pantene and Head & Shoulders brands. Within the prestige sales channel, P&G competes with its prestige fragrances and the SK-II brand and is the global market leader in prestige fragrances with help from its Dolce & Gabbana, Gucci, and Hugo Boss fragrances. The company is expanding its luxury fragrance offering with a new licensing agreement with designer Stella McCartney. P&G began selling her fragrances in fall 2013.
Through its long-established Gillette franchise, which boasts the Fusion, Mach3, Prestobarba, and Venus brands, P&G's Grooming segment has captured about a 70% stake in the global blades and razors market. The company's electronic hair removal devices, such as electric razors and epilators, sell under the Braun name worldwide. The Grooming segment (generating 10% of sales) has achieved a 20% share of the male shavers market and a more than 40% stake in the female epilators market.
P&G's Health Care segment, which brought in 15% of sales in 2013, includes oral care, feminine care, and personal health care products. Nearly all of its personal health sales outside the US are generated through the PGT Healthcare partnership with Teva Pharmaceuticals Ltd.
The Fabric Care and Home Care segment (33% of 2013 sales) comprises laundry detergents, additives, and fabric enhancers, as well as dishwashing liquids and detergents, surface cleaners and air fresheners, batteries, and pet care.
Boasting a 35% global market share, the company's Baby Care and Family Care segment makes and markets diapers and baby wipes. The segment generated 20% of P&G's 2013 revenue.
Aside from its primary business as the world's top consumer products company, P&G operates in sectors most consumers don't consider. To establish itself in the commercial cleaning niche, it operates the P&G Pro Line Lodging Program, an in-room cleaning and on-premise laundry (OPL) and daily-cleaner service. (P&G's Pro Line cleaning products -- which are strategically part of the services -- include several of its brands: Comet, Downy, Febreze, Mr. Clean Magic Eraser, Spic and Span, Swiffer Dusters, and Tide.) P&G also operates a dozen Mr. Clean Car Wash and Oil Change locations (formerly Carnett's Car Washes) in Atlanta.
P&G has built a formidable business partnering with pharmaceutical firms for years, as well, to tap into the industry's lucrative niches. P&G formed a 51%-owned joint venture with leading generic drugs maker Teva Pharmaceutical Industries to sell over-the-counter (OTC) drugs outside North America. P&G and Teva anticipate their alliance will generate up to $4 billion in sales by 2015. In the past, P&G has partnered with Novartis to give Enablex, a Swiss pill used to treat overactive bladder, a deeper and broader reach into the US. It also operates joint venture SPD Swiss Precision Diagnostics with Inverness Medical Innovations to market at-home diagnostic products (including pregnancy tests and fertility monitors under the Clearblue, PERSONA, and Accu-Clear names). Additionally, P&G works with therapeutic drug development firm Curis to research and develop potential hair growth treatments leveraging Curis' Hedgehog agonist technology.
Along with P&G's product depth and breadth has come a consistent tweaking of its portfolio in an effort to regularly boost profits and consistently deliver a return to shareholders. The company's latest move on that front is the pending spinoff of Duracell, preferably into a standalone company. P&G also pares down its workforce, when needed, to align with slowing sales and the rising costs of commodities. In early 2012 P&G announced plans to eliminate about 5,700 jobs -- about 10% of its nonmanufacturing workforce -- by mid-2013, hoping to realize $10 billion in savings by mid-2016.
The company has turned to its highest revenue-generating products for the most growth potential. Even though P&G holds market-leading positions in several product categories, the company has been focusing resources on its roughly 40 best-selling brands. Best sellers are those that generate more than $500 million annually and represent some 85% of sales; brands that fall below this metric are typically sold off. Along with continuing to grow its core brands and categories through innovation, P&G is looking to build its business by catering to unserved and underserved consumers. The consumer products giant is following what it calls a purpose-driven business strategy: more consumers, more parts of the world, more completely. In addition, P&G -- for a fifth consecutive year -- invested about $2 billion in research and development. As part of its strategy, it's also focused on expanding high-margin businesses that are fast-growing and have potential for being global leaders.
Mergers and Acquisitions
P&G, which has slowed its M&A activity during the past year, makes select acquisitions to serve its strategy. To boost its largest business segment, the consumer products giant bought Sara Lee's European air-freshener business Ambi Pur in 2010 for €320 million ($470 million). Ambi Pur products include plug-in and stand-by air fresheners, aerosol sprays, and toilet cleaners. With Ambi Pur's presence in more than 80 countries, the deal helps P&G extend its global presence. P&G also acquired Natura Pet Products, a California-based maker of holistic and natural pet foods, in 2010. Its pet foods, marketed under the Evo, Healthwise, Innova, and Karma brands, are primarily sold through specialty pet stores and veterinarian offices in the US and Canada. Adding Natura strengthens P&G's lineup of holistic and natural pet food products, as well as complements its Iams and Eukanuba brands. To further invest in its men's products portfolio established through its Gillette acquisition, P&G purchased The Art of Shaving, a high-end brand of men's shaving and skin care products, and Zirh men's skincare and shaving products.
Part of what fuels growth at P&G is the proceeds generated through the sale of existing non-core businesses. Most recently, the company announced the sale of its MDVIP personalized health care business to private equity firm Summit Partners. P&G exited its snacks business when it sold off its Pringles canned-chip brand to Kellogg in mid-2012 in a $2.7 billion all-cash deal. (Earlier plans to sell the chip business to Diamond Foods fell through under the weight of an internal accounting scandal.) Other brands chopped from P&G's portfolio include: Max Factor (which P&G stopped selling in the US in 2010 to free up retail shelf space for more popular brands), Noxzema (which P&G sold to Alberto-Culver in 2008 but retained the business in parts of Western Europe), and Infusium 23 hair care (which it sold to Helen of Troy). (At the end of 2011 P&G also sold its PUR water purification products business to Helen of Troy.) P&G kicked its coffee habit in 2008 by selling the Folgers business to The J. M. Smucker Company in an all-stock transaction valued at more than $3 billion. The deal comprised P&G's entire coffee business, including Folgers and Millstone, as well as its licensing agreement with Dunkin' Donuts to distribute that company's coffee. P&G also sold off most of its 60-year old Zest soap brand in 2011 to High Ridge Brands, a portfolio company of private equity firm Brynwood Partners. The deal included the rights to sell Zest bar soap and body wash in the US, Canada, and the Caribbean. P&G retained the rights to sell Zest in the Philippines, the Middle East, and Latin America -- areas of the world the company is counting on for growth. (P&G has also retained the rights to the Olean brand and technology.)
P&G has been logging revenue increases since 2010. Revenue increased slightly (about 1%) in fiscal 2013 to $84.2 billion from $83.7 billion in 2012. The company attributes the gain to rising revenue from its Health Care; Fabric Care and Home Care; and Baby Care and Family Care segments, offset in part by declining revenue from its Beauty and Grooming segments. Within its developed and developing regions, the company's volume grew by lower single digits. Price increases contributed 1% to sales, driven by price increases across all business segments (primarily executed in prior periods to offset cost increases and devaluing developing market currencies). Foreign exchange helped to reduce sales by some 2%. Organic sales growth, meanwhile, reached 3%, thanks to volume and price increases.
Net earnings came in at $11.3 billion for the same reporting period, representing an increase of 5% vs. 2012. P&G's net earnings from continuing operations rose 22%. Driving some $1.9 billion of the increase were several factors: the combination of the net year-over-year impact of acquisition and divestiture gains and the net year-over-year decline in impairment charges. Sales growth and gross margin expansion comprises the remainder of the net earnings increase. Net earnings from discontinued operations dropped $1.6 billion due to the gain on the sales of the snacks business and the earnings of the snacks business prior to the divestiture in the prior year period.
Sales and Marketing
Along with its vast stable of brands, P&G each year invests mightily in advertising its products. In 2013 the company spent $9.7 billion on advertising expenses, up from 2012's $9.3 billion. (Even during the recession, P&G in 2009 shelled out some $7.4 billion for ads.) The company supports its products through advertising, promotions, and other marketing vehicles as it works to build brand awareness. Since the über acquisition of near-equal behemoth Gillette, P&G has seen the marriage of the two giants as offering it increased and sustained bargaining power against the likes of Wal-Mart (which accounted for about 14% of P&G's 2013 sales) in the US and Aldi in Europe, as those two companies delve deeper into private labeling and cost-conscious positioning. The P&G-Gillette entity also flexes more muscle in media spending negotiations.
P&G sells its products worldwide through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, salons, e-commerce and high-frequency stores, and neighborhood stores that serve consumers in developing markets. Meanwhile, the consumer products company continues to strengthen its footprint in other sales channels, such as pharmacies, perfumeries, and e-commerce.
P&G hasn't always been on top. The company reached its lofty spot as the world's largest consumer products company in 2005 through one of its boldest moves -- buying Boston-based The Gillette Company for about $57 billion. Overnight, the ambitious deal gave P&G the golden ticket to leapfrog over former #1 supplier Unilever. P&G's purchase of Gillette added well-known complementary brands to its already vast portfolio, such as Gillette razors and blades, Duracell batteries, Oral-B oral care items, and Braun appliances. Because some of the two companies' brands competed (such as P&G's Old Spice and Crest vs. Gillette's Right Guard and Oral-B), P&G was required to divest certain assets to satisfy antitrust regulators. (It sold its SpinBrush business to Church & Dwight for $75 million and its 33-year-old Sure brand in 2006 to Najafi Companies' Innovative Brands. Gillette also sold its Right Guard, Soft & Dri, and Dry Idea brands to Henkel's Dial Corporation.) Also, CBS in 2010 canceled P&G's last on-air soap opera As The World Turns (ATWT) after 54 years on television. The final episode of ATWT aired on September 17, 2010. Previously, through its partnership with CBS, P&G produced Guiding Light (which began as a radio program in 1937) until September 2009. Television soap operas, which are relatively expensive to produce, are a dying breed as viewership declines and networks favor cheaper game, reality, and TV talk shows. Both ATWT and Guiding Light were made by P&G subsidiary TeleNext Media, which was established in 1933 to produce programming to promote its soap and laundry detergents.