Procter & Gamble's Alan Lafley on Activist Investors' Watch List

NEW YORK (TheStreet) -- Procter & Gamble (PG) and its CEO, Alan Lafley, are feeling some heat this summer, and I don't mean just from the weather. It's been a little over a year since the iconic consumer goods company announced Lafley would replace then CEO Robert McDonald.

McDonald was in the early innings of a turnaround initiative to cut $10 billion in costs through 2016. His plan to revitalize P&G's focus on its leading businesses after losing market share to such rivals as Unilever (UN) was interrupted when activist investor Bill Ackman purchased $1.8 billion of PG stock and pushed to replace McDonald.

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Now the stock is below the level it rose to after Lafley replaced McDonald. Shares closed Monday at $80.19, down 1.5% for the year to date. After reporting flat first-quarter revenue numbers the company also confessed that its year-over-year quarterly earnings growth had risen a paltry 1.7%.

Although P&G raised its dividend to $2.57, making the yield-to-price a tempting 3.21%, this lifted the payout ratio to 65%. That ratio won't subside until the company's earnings growth increases. That is precisely what the company's largest shareholders are waiting for.

Growing earnings shouldn't be difficult for a company that serves approximately 4.8 billion people globally with its panoply of brands.

The company's Prilosec OTC remains the #1 best-selling over-the-counter frequent heartburn medicine for nine straight years. Yet, if I were the CEO and saw the following one-year price chart of my company's stock, I might require some heartburn relief.

PG Chart
data by YCharts

The blue price line looks like a roller-coaster ride for investors. The orange quarterly year-over-year retained earnings and the red trailing twelve month diluted earnings per share lines both look like precipitous followed by a tiny rebound for EPS.

CEO Lafley is personally impacted by the stock's volatility. As of June 30 he owned nearly 627,000 shares valued at over $50 million!

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