It's one of the most ruthless brand slaughters in corporate history. Procter & Gamble (PG) last week announced, concurrent with its latest quarterly results, that it would jettison as many as 100 of its products. This is more than 50 percent of its total, an awfully big number for any company rationalizing a product portfolio.
Eliminating the Esoteric
But no one should worry that the company's more famous items -- Gillette razors, for example, Pampers diapers or Duracell batteries -- are being abandoned. Although the company hasn't specified which goods will go, it has said that they will be its smaller and more obscure offerings. (One analyst suggested Ausonia, Discreet, Blend-a-Dent, Braun Oral-B and Rindex will go.)
The rationalization is sensible. After it's finished, P&G will have around 70 to 80 products, which were collectively responsible for roughly 90 percent of its $83 billion in global sales for fiscal 2014.
It intensifies a strategy the company has begun recently. This past April, it shed most of its pet food brands, notably the Iams and Eukanuba lines to Mars (best known as the maker of candy like M&Ms and Snickers) for $2.9 billion in cash.
Divest and Grow
Procter & Gamble's stock rose on news of the sell-offs. Investors, it seems, are cheered by the potential of eliminating that dead weight.
Although the company hasn't been doing badly of late -- it beat the average analyst estimate for profitability in its recently reported quarter -- its growth has been sluggish, and it could use some streamlining. That $83 billion sales figure is less than 1 percent higher than the 2013 tally, while net profit advanced by 3 percent to $11.6 billion.
Likely adding to that positive sentiment is the fact that the company has done the divestment dance many times before (although, it has to be pointed out, not with so many products at once).
Starting in 2001, it inked deals with comestibles giant J.M. Smucker (SJM) that saw it part ways with familiar brands Jif peanut butter, Crisco shortening and Folgers instant coffee. Combined, those deals were valued at nearly $4 billion.
More recently, it sold another well-known food line, Pringles potato chips. That brand, which was originally to have been transferred to Diamond Foods (DMND), eventually ended up at Kellogg (K), with the latter firm ponying up nearly $2.7 billion for the salty snacks.
With that kind of track record, investors can be reasonably confident that Procter & Gamble can dispose of its lesser brands just as effectively.
Sell a Brand and Win
Whatever the impetus for doing so, companies often benefit in numerous ways when they jettison their less critical product lines.
The promise to do so helped General Motors (GM) ultimately draw tens of billions of dollars in bailout money from the government after the company came to the brink of failure during the 2008-2009 recession.
General Motors made good on that pledge, selling Saab and, following a failed attempt at divestments, shuttering its once-innovative Saturn line and that of Hummer, the gas-guzzling civilian version of the military's Humvee troop car.
U.K.-based consumer goods multinational Unilever (UL), meanwhile, began shedding some of its food brands in late 2011, and it has since seen its share price grow by around 22 percent.
Products that left the company's portfolio include Skippy peanut butter, sold in 2012 for $700 million to Hormel Foods (HRL), and the Bertolli and P.F. Chang's Home Menu frozen prepared meals lines. Those brands were bought by ConAgra Foods (CAG) for $267 million in that same year.
Like Procter & Gamble, Unilever is a veteran at divestment. In 2008, the company unloaded its North American laundry detergents business (comprising the All, Wisk, Surf and Snuggle brands) to private equity concern Vestar Capital Partners. Laundry detergent might be a low-cost item, but the deal wasn't. Unilever brought in nearly $1.5 billion in cash and stock from the sale.
Slimming down Procter & Gamble won't be an easy or quick task; the company hopes to sell a lot of brands, and its less-popular ones at that. In spite of the firm's experience in sell-offs, this will take plenty of time and not a little effort.
But at least it's taking concrete steps to become leaner and more focused, and the market seems to be cheering the attempt. Hopefully for its shareholders, Procter & Gamble's try will lead to better financial results, and keep up support for that stock price.
Motley Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends General Motors, Procter & Gamble and Unilever. Try any of our newsletter services free for 30 days.
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