This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Procter & Gamble Investors Cheer Lafley, but Bounce Won't Last (Update 1)

Updated from 9:33 a.m. ET with additional information throughout.

NEW YORK ( TheStreet) -- Procter & Gamble (PG - Get Report) shares were gaining Friday on news A.G. Lafley will return to lead the company as it searches for a permanent CEO, but Lafley may not find it so easy to repeat his previous success.

Lafley, who takes over from Bob McDonald, led Procter & Gamble for a successful stretch from 2000 to 2009. During those years, P&G returned more than 12% to shareholders excluding dividends, while all the major indices posted losses.

Since then, however, P&G performance has been a disappointment. The underperformance drew the attention of activist hedge fund investor Bill Ackman, who has acquired 28 million shares and large stake and has aimed to shake up the company. Ackman, who went public with his stake in 2012, was critical of McDonald in a presentation at the Ira Sohn investor conference May 8 of this year. He noted the CEO's multiple board positions on other companies and argued McDonald was "distracted by outside interests." Ackman cited Lafley positively in his recent presentation.

P&G shares were up 3.9% to $81.78 in morning trading, and news of Lafley's return sparked an upgrade from UBS on Friday.


"In our view, the announcement of AG Lafley re-taking the helm of P&G is a positive, mainly because: 1) he is a familiar entity with investors and the P&G organization, 2) he has turned P&G in the past, 3) he has leadership qualities that can align the organization along a few core principles and 4) he will have latitude to re-base earnings to re-ignite top line," wrote analyst Nik Modi.

However, Credit Suisse was more circumspect, noting the outperformance of P&G under Lafley "was clearly during a time of global macro-economic prosperity and when some of PG's global competitors were punching below their weight (notably Unilever)."

As a result, Credit Suisse analysts urged "caution against expecting immediate miracles," adding they "would view PG as being in a transition phase."


And who is to say the transition is the right one to make? According to Credit Suisse, "some of the issues PG are still dealing with today (such as premium price points in many categories, and a sub-scale presence in some key emerging markets) are ones Mr. McDonald inherited and partly originate from this period of time."

Goldman Sachs analysts were similarly cautious. "Don't forget performance was sliding when Lafley left the firm and that he left it in the state that Bob McDonald (his former protégé) inherited. A.G.'s intense focus on good-better-best ultimately deserves part of the blame for the company's creation of price umbrellas that gave competitors fertile hunting ground," they wrote.

Even Ackman, who hailed Lafley's return in a statement to CNBC Friday, complained in his May presentation that P&G "never fully integrated the massive Gillette acquisition of 2005." Whose fault is that? While one could argue four years isn't long enough to integrate a $57 billion deal, certainly Lafley should have put P&G on the right path to enable McDonald to finish the job.


P&G investors got their pop on Friday. Now the long slog begins. If Lafley isn't the miracle man investors expect, the longtime blue chip could suddenly find itself in serious disarray.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
PG $82.15 -1.04%
AAPL $124.24 0.70%
FB $83.01 0.11%
GOOG $555.17 -0.65%
TSLA $190.40 -2.00%

Markets

DOW 17,678.23 -40.31 -0.23%
S&P 500 2,056.15 -4.90 -0.24%
NASDAQ 4,863.3620 -13.1570 -0.27%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs