Procter and Gamble FY 4Q15 Earnings Call Notes

New CEO effective Nov 1

“As you know, earlier this week, we announced that David Taylor had been elected and appointed as the new Chief Financial Officer of the company, which becomes effective November 1. And sorry, Chief Executive Officer.”

1% organic sales growth, but 6 point hit from currency

“For the fiscal year, organic sales grew 1%. Excluding the businesses we’re in the process of exiting, organic sales grew 2%. All in sales were down 5%, including the 6 point headwind from foreign exchange. ”

EPS down 2% y/y. 13 point hit from forex

“Core earnings per share for the year were $4.02, down 2% versus the prior year. This includes a 13 point headwind from foreign exchange, over $1.5 billion after tax. On a constant currency basis, core earnings per share grew at a double digit 11% rate. ”

Cutting costs at advertising agencies

“Marketing spending is another area where we are delivering more, greater reach, higher frequency, more advertising for less overall cost. The savings are coming primarily from non-working marketing spend. One example are the fees and production costs for agencies we use for advertising, media, public relations, package design, and development of in-store materials. We’re simplifying and reducing the number of agency relationships while upgrading agency capability to improve creative quality and communication effectiveness all at a lower cost. Our overall agency costs in fiscal 2015 were down about 15% versus the prior year.”

Essentially completed portfolio reshaping

“With the beauty brands merger with Coty announced earlier this month, we have essentially completed the strategic portfolio reshaping. We’ve completed the decision making, negotiation and contracting work on businesses that represent 95% of in scope sales and essentially all of the in scope profit. ”

Gillette has an online shave club too

“Gillette’s online Shave Club is off to a very good start. We’re building partnerships with e-tailers and retailers who are offering their shoppers subscription tie-ins for the Gillette Shave Club.”

Guiding to low to mid single digit decline in revenue next year

“Against this volatile backdrop, we think it’s prudent to start fiscal 2016 from a guidance standpoint with relatively modest, relatively wide target ranges. We’re projecting organic sales growth in line to up low single digits versus fiscal 2015. We’ve recently delivered towards the low end of this range. We certainly aim to improve, but it’s unlikely that growth acceleration will happen immediately or in a straight line.”

“The headwind from foreign exchange will have a 4% to 5 percentage point impact on all-in sales growth. Also, minor brand divestitures will have a modest drag on all-in sales growth. Taken together, we expect all-in sales growth to be down low to mid single digits versus restated fiscal 2015 results.”

A lot of our markets are challenged, for instance we had to take price in Russia to protect gross margin

“we’re the market leader in a lot of the countries that are difficult right now, Russia’s an example, and as I mentioned, we’ve made a very deliberate choice. The choice we had in Russia was very simple. We could accept negative gross margins in perpetuity, or we could price to restore structural economics so that future growth would be worth something. And that’s the choice we’ve taken there as in other markets. And it’s had a significant impact as we expected. So if you look at the month of June for example, our sales in Russia were down 57%, and we’ve got to work our way through these things. But we’re taking an approach that we’re convinced is the right approach for the long term.”

Clearly we’re over expanded

“this isn’t a continuation of what we were doing and I don’t want to belabor that. But we were clearly over-expanded, okay, into developing markets and even into frontier developing markets, and you know what’s happened there in terms of growth slowdown, economic and political volatility and the FX issue which Jon has mentioned a couple of times is real, and will continue through the end of this calendar year, okay.”

You have to follow the shopper into the channels that are growing

“When you choose to follow the shopper, you obviously have to commit coverage and resources to growing channels, and we’ve done that. So we’re in a much better position for example in e-commerce than we were three years ago. E-commerce is growing 30% to 40%. We’re pretty competitive. There’s still upside opportunities and there’s more to come with subscription and auto-replenishment, okay. So yes. Follow the shopper into the channels that are growing. E-commerce is one. Drug is obviously another one. Small box discounters. I could go on.”

This analyst seems not happy

“So you sound very different than I would have hoped on the call today or on CNBC this morning. There’s still a lot of defiance. There’s still a lot of confidence, it feels like. And look, all the frustration we’re all feeling, I feel as well probably times 10. You’re kind of brushing off the tough questions and maintaining this trust us, it’ll turn, it’ll turn. But just let me offer you a look through the lens of a shareholder, right, who you are as well. And you see what the stock price has done, and you look at organic sales growth and it’s dismal and it’s getting worse, and you admit that….Well I think plan B, which is seriously think about breaking up the company. That’s very complex, is a viable option. It sounds like you guys have looked at it and I don’t understand why it hasn’t worked. … there’s another, bigger solution here, right? Which is it’s just too big to run…Maybe perhaps you’re not even a growth company anymore and you have to think about it differently from just being growth.”