P&G Being Clipped Past By Unilever Due To Currency Volatility, But Consumer Giant is Itself To Blame

Cincinnati-based P&G complains of strong dollar clipping growth, but long-term streamlining of operations affecting its focus on profit generating activities

The last 12 months have not been kind to Procter & Gamble Co (PG). Its stock value has dropped from the mid 80’s to the early 90’s; owing to the strong dollar, which is affecting the company’s profitability. It earns far less from revenues earned abroad when converted to dollars, so that its competitor Unilever has leaped P&G in terms of its weaker euro that has helped it to earn more profits when converted to its local currency.

The unfavorable currency fluctuation is not the only reason for P&G’s woes. While it has definitely shaved off its earnings, the problem lies in the inner core of the company as well as its external operations. It has been focusing on rationalizing its product and brands portfolio for the past several months, in addition to streamlining its operations so that it becomes more responsive to the market demands than to be saddled with lots of P&G products and brands dubbed as dogs and questions despite attempts to revamp or modernize. These are signs depicting the transition of the company to be more internalized.

In contrast, Unilever, on the other hand, has become the star in the views of investors, by reporting top-notch profits due to a depreciating currency. Even though it is headquartered in the UK where the pound is used, euro is also used for transactions. Its stronger exposure on the emerging markets front also plays a pivotal role. This is the company’s core strategy, as it will help to generate stronger revenues due to a growing population. Even if these economies are facing a slowdown, it is a matter of a transition to healthier and sustainable economies.

For the last 10 years, Unilever faced a tough time in its profitability and stock performance. It changed in 2008 when the new CEO, Paul Polman, took over the job, did the company’s ‘homework’, and applied the strategy of streamlining the company’s operations with customized processes in order to turn it from a lousy consumer giants, to an efficient global player. On the other hand, P&G has been hibernating since 2009, when the new CEO failed to make much impact on the company’s operations. When the old CEO, A.G Lafley, was brought back, it was announced in 2014 that it would apply the same tactics as that of Unilever.

The new plan envisages the company dropping almost 100 of its brands that are sold in a limited way around the world and focus on the remaining 80 brands that generate 95% of profits and revenues for the company. Although this will help in improving P&G’s margins, it will not prove to be enough for investors, who will view this as nothing more than a fine-tuning of portfolio, rather than trying to find innovative ways to improve its share price in the near future. The high hopes for the company prevail once the new (preferably younger and dynamic) CEO takes helm from Lafley, whose second term ends this year.