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Lafley returns to P&G as chairman, president, CEO
May 24th, 2013
CINCINNATI – Procter & Gamble Co. (P&G) has called on its former chief executive officer, A.G. Lafley, to replace Robert McDonald, who has announced he will retire effective June 30.
Lafley, who joined P&G in 1977, served as its president and CEO from 2000 to 2009. McDonald joined P&G in 1980 and had served as president and CEO since 2009.
The change comes one month after P&G released third quarter financial results that exceeded analysts’ earnings targets but fell short of sales expectations. The company’s fourth quarter profit forecast was also lower than analysts’ estimates.
P&G posted a 2% increase in third quarter sales to $20.6 billion, short of the $20.73 billion expected by analysts surveyed by Thomson Reuters. Net earnings grew 6% to $2.57 billion, or 88 cents per diluted share, while core earnings per share rose 5% to 99 cents per share, ahead of the consensus estimate of 96 cents among analysts. However, management predicted that fourth quarter profits will decrease to a range of 69 cents to 77 cents per share, down from 82 cents per share in the fourth quarter of fiscal 2012.
Last February McDonald launched a $10 billion restructuring program that eliminated thousands of jobs in an effort to streamline operations, restore nimbleness and reduce a bloated organization that he had inherited. Dissatisfaction with the pace of change among analysts erupted during a conference call last spring. During the summer, moreover, it was disclosed that Pershing Square Capital Management, the hedge fund led by William Ackman, had a sizable stake in P&G that amounts to about $2 billion, or 1% of the company’s outstanding shares.
Reportedly Ackman pressed the board to take away McDonald’s role as chairman and launch a search for a successor as CEO, but the board took neither of those actions. Earlier this month during a presentation at the University of Chicago, however, Ackman stated that if P&G did not show enough improvement by the end of the fiscal year on June 30 McDonald should be replaced.
Ackman has recently figured in financial headlines for his role as the main backer of Ron Johnson, who was recently fired as CEO of J.C. Penney Co., after pricing changes Johnson initiated resulted in precipitous sales declines for the mid-tier department store operator.
In a brief conference call, P&G chief financial officer Jon Moeller played down the significance of the change and said that it did not indicate bigger problems or financial issues for P&G. "This change very simply reflects Bob McDonald’s decision to retire and the board’s view that A.G. Lafley was currently the best person to replace Bob and build on the momentum that Bob has initiated and led," he said, adding that there would be no dramatic change in the company’s strategy.
But a statement issued by the lead director on the board hints that financial performance in fact is behind the move and further that Lafley’s role may be temporary.
"A.G.’s track record and his depth of experience at P&G make him uniquely qualified to lead the company forward at this important time," said Jim McNerney, presiding director of the P&G board, in a statement. "The board expects A.G. to further improve results, implement the current productivity plan and facilitate an ongoing succession process. The board is confident that he will continue improving P&G’s performance."
Press reports cited an internal memo from McDonald, who described the decision to retire as very difficult but in the best interests of the company. He cited attention focused on him that had become a distraction, concluding that "it’s time to change that dynamic."
"I am looking forward to working with P&G’s outstanding leadership team to continue to improve the company’s performance," said Lafley. "I am confident that we will deliver strong innovation, productivity and growth to win with consumers, customers and shareholders."