Is P&G too big? Weighing pros and cons of break-up
CINCINNATI -- For decades, bigger has been better at Procter & Gamble.
The maker of Tide, Pampers and other household staples has long boasted the world's largest portfolio of consumer products. With operations in 41 countries and 126,000 employees, its annual sales of $84 billion are more than double those of its closest competitors.
Some P&G shareholders, though, are growing impatient with a stock price that's hovered in the low- to mid-$60s for years. Some analysts, too, question whether the company has grown too big for its own good. In the past year, it has twice missed profit projections amid the worldwide economic slowdown.
"It's fair to say Procter is bogged down, and the sheer size leads people to believe it's a conglomerate, and conglomerates generally don't grow all that quickly," says Connie Maneaty, analyst with BMO Capital Markets.
P&G executives clearly state that a breakup is not in anyone's best interest. To the contrary, P&G has reaffirmed its business model and is cutting $10 billion in costs.
Still, some analysts are wondering aloud: What if P&G were broken into parts?
Speculation has grown with the arrival of hedge fund manager Bill Ackman, whose Pershing Square Capital Management acquired a $1.8 billion stake in P&G in June. Ackman hasn't disclosed his intentions but has indicated he will move aggressively to shake things up.
Forcing a breakup would be close to impossible without the board's consent. Ackman controls less than 1 percent of P&G and would need much stronger backing to press for big changes.
PROS
Faster growth
The bigger a company is, the harder it becomes to get even bigger. Consider the math: One hit product might not be enough to move the needle at P&G, whose annual sales grew by 3 percent to $83.7 billion in 2012. That same hit product would constitute much larger sales growth at smaller rivals. For smaller competitors, sales growth is easier, because they're just not so big. In their last fiscal years, these smaller companies' sales grew faster:
• Avon, up 4% to $11.3 billion.
• Clorox, up 4.5% to $5.5 billion.
• Colgate-Palmolive, up 7.5% to $16.7 billion.
• Estee Lauder, up 10.3% to $9.7 billion.
• Johnson & Johnson, up 5.6% to $65 billion.
• Kimberly-Clark, up 5.6% to $20.8 billion.
• L'Oreal, up 4.4% to $20.3 billion.
• Unilever, up 5% to $46.5 billion.
Bigger profit margins
P&G maintains that its size saves it money. The company hasn't recognized dramatic improvements in cost structure. In the past decade, P&G's sales have more than doubled, but its operating profit margin -- a key measure of financial soundness and ability to control expenses -- hasn't gained much ground. In the last fiscal year, P&G had a 17.8% operating profit, compared with 16.6% in 2002, when it was a $40 billion company.
Several rivals, with fewer workers and product lines, have fatter operating profit margins:
• Colgate, 23%.
• Johnson & Johnson, 24.8%.
The percentage points add up to big bucks: A 1 percent increase would push $865 million toward P&G's bottom line.
Clearer executive focus
