The Procter & Gamble's CEO Presents at Barclays Back to School Conference (Transcript)

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The Procter & Gamble Company (NYSE:PG)

Barclays Back to School Conference Transcript

September 4, 2013 9:00 AM ET


Jon Moeller - Chief Financial Officer

A.G. Lafley - Chief Executive Officer


Lauren Lieberman - Barclays


I’d like to remind you that today’s presentation includes a number of forward-looking statements. If you will refer to P&G’s most recent 10-K, 10-Q and 8-K reports you will see a discussion of factors that could cause the company's actual results to differ materially from these projections.

Also as required by Regulation G, Procter & Gamble needs to make you aware that during the presentation the company will make a number of references to non-GAAP and other financial measures. For completeness, Procter & Gamble has posted on its website a copy of the key slides from this presentation and a full reconciliation of non-GAAP and other financial measures.

Lauren Lieberman - Barclays

I’m not done. I have to clarify on that. Given the size of many of P&G’s businesses and the many years of insufficiency for some, we understand it will take time for revenue turnaround to take hold. However, we do think P&G is on the right track by aiming diagnose and solve the challenges that its biggest businesses face, both those that are self-inflicted and those that are results to changes in the marketplace and in terms of consumer behavior.

Of course, it’s wonderful to have Jon Moeller with us again this year, the company’s CFO, but we are also particularly grateful to have CEO, A.G. Lafley with us this morning for his first presentation since returning to the company earlier summer. Jon, thanks again.

Jon Moeller

Thanks, Lauren. I’m going to start this morning with the brief review of our recent results and outlook. A.G. will then discuss our key strategies and focus areas going forward. Along the way we’ll try to address the few of the most frequently asked questions we’ve been receiving since our earnings call last month.

As we outlined in our earnings call last fiscal year, we meet or exceeded our commitments on each key measure, organic sales growth was 3%, the midpoint of our initial guidance range of 2% to 4%. We began to restore growth in the core U.S. market that represents over a third of P&G sales and an even greater percentage of profit.

U.S. fourth quarter organic sales grew at 7% on volume growth of 5%. We maintained goods developing market momentum, organic sales growth in our top 10 developing markets was up 8% in the fiscal year and currently we grew profit meaningly ahead of sales in developing markets, while increasing investments in those markets year-on-year.

We stabilized global market share and ended the year with modest market share growth. P&G global value share was over 20% for the June quarter, up slightly versus prior year on the mix adjusted basis.

We held or grew market share in businesses representing more than 60% of sales in the June quarter, nearly doubled the level compared to the same period last. And in the U.S. we held or grew value share in businesses representing over 70% of sales.

We grew core earnings per share 5% above our initial minus 1 to plus 4% guidance range. We did this while absorbing the Venezuela Bolívar devaluation impact and significant overall dollar strengthening. We also increased marketing investments as the year progressed.

We continue to make good progress on our productivity plan. We delivered over $1.2 billion in cost of good savings and improved manufacturing productivity by 7% versus a target of 5%. Through June, we reduced non-manufacturing enrollment by 7,000 roles. This is 1,300 role reductions ahead of our initial commitment for June, giving us good head starts on the 2% to 4% reduction we are planning for fiscal 2014.

A progress on working capital productivity yielded 98% adjusted free cash flow productivity, ahead of our 90% target. We returned $12.5 billion to shareholders, 110% of net earnings through a combination of $6.5 billion in dividends, reflecting a 7% dividend increase and $6 billion in share repurchase.

Our fiscal 2014 presents several opportunities and some challenges. Tailwinds include positive market share momentum, a number of new and important innovations and savings from productivity improvements. Headwinds include weaker underlying market growth, currency and a rapidly developing policy environment.

We are currently forecasting organic sales growth of 3% to 4%, which compares to project market growth of about 3.5% and we’ll put us ahead of fiscal year ’13 growth. Currency is expected to be a sales growth headwind of about 2 points, which leaves all-in sales growth in the range of 1% to 2% for fiscal 2014.

Moving to the bottom line, our current forecast is for core earnings per share growth of 5% to 7%, equal to prior year growth at the low end of the range and within our long-term annual target at the high end of the range.

And on all-in GAAP basis we expect earnings per share to grow approximately 7% to 9%. This range reflects somewhat lower non-core restructuring costs in fiscal 2014 versus the prior year.

As you think about earnings progress throughout year are several headwinds that will impact first half earnings growth, which will dissipate in the second half. Foreign exchange will be a significant headwind in the first half, which should moderate in the second half.

We will continue to have relatively high spending and manufacturing startup costs but this will largely annualize in the second half of fiscal 2014. We’ll annualize the operating impacts from the Venezuela Bolívar devaluation in the second half and productivity savings will build throughout the year.

Also the first half comparison includes the onetime gain from the Western European bleach business in the base period. With all of these factors considered, core earnings per share growth will be down in Q1 with some improvement in Q2. Second half earnings will be much stronger as headwinds such as FX dissipate.

The guidance we gave last month is based on mid-July foreign exchange spot rates. This represents roughly a 6 point earnings growth headwind from foreign exchange. One of the frequent questions we received since our earnings release concerns the relatively large disparity between the 2 point topline impact and the 6 point bottom line impact.

This is driven by significant rate movements in countries where we have a relatively high amount of imported finished product or raw materials that are not denominated in local currency. These markets are buying finished product in dollars or euros with significantly weaker local currencies. Two examples are Japan and Venezuela.

We expect 2014 to be another year of strong productivity improvement. We have line of sight to $1.4 billion in cost of good savings, including manufacturing and productivity of around 6%.

As I said earlier, we exceeded our overhead enrollment reduction targets by 1,300 roles as of the end of June, given us a head start on 2% to 4% reduction we were planning for fiscal 2014.

We look to deliver this and to accelerate fiscal ‘15 reductions into fiscal ‘14. The savings will enable us to fund investment, offset increasing wage inflation and improve overall financial flexibility. We expect marketing spending to increase in absolute dollars but decrease modestly as a percentage of sales as we continue to drive higher return on investments.

We expect to deliver another year of around 90% free cash flow productivity. Our plan to soon we’ll pay over $6.5 billion in dividends and repurchase $5 billion to $7 billion of our stock, continuing to deliver on our commitment of cash return to shareholders. Our market cap of about $215 billions this equates to an effective shareholder yield of approximately 5% to 6%.

We receive some questions on whether we feel our core earnings per share growth outlook for this fiscal year is too aggressive. First, I would remind you that we’ve provided a guidance range of 5% to 7%. Most of the people asking this question seem anchored on the 7% top end range.

Second, we try to be very transparent about what is and what is not included in our guidance range? There are headwinds that could potentially cause us to reduce our estimates if they move meaningfully against us.

One thing we’re watching closely is the unrest in Egypt, which is the large business for us in the base of export to balance of Africa. Venezuelan price controls access to dollars for imported products and devaluation are additional risks. We’re keeping a close eye on overall dollar strengthening.

Mid July foreign exchange rates translated to 6 point earnings per share headwind as I said earlier at current rates which are volatile and maybe overdone is now 7% to 8% headwind, which will put us towards lower end of our guidance range including FX unchanged excluding FX.

We are also seeing some breakdown in historic inverse correlation between the currency and commodity markets. As I said many times before, we will not chase currency or commodity costs just to deliver short time guidance number.

Finally, I want to take a second to make sure you understand our approach or philosophy related to guidance. Our intend is to set fiscal year target ranges that are balanced and realistic, based on the best data we have at the time we communicated the goals to you. We’re giving you our best estimates in uncertain and volatile times.

As we move through the year we will be very transparent about changes in our plans, the competitive environment and the macro-environment, just as we are today with our update on foreign exchange. If the changes warrant an adjustment in our fiscal year target ranges we will update you along the way. Today we believe we have adequate flexibility based on what we know and understand to deliver against our current guidance range.

With that, I’ll turn it over to A.G. who will talk about the adjustments we’re making into priorities and focus areas for this year and beyond.

A.G. Lafley

Thanks Jon. Over the last three months we’ve taken a hard look at business strategies, plans and budgets. We’ve dug into innovation programs and productivity plans. Last year we took several steps in the right direction but we know we’re still not winning as consistently as we can and we’re committed to make the changes we need to make to improve our performance.

First, we’ve established value creation for consumers and shareowners as are clear priority. Operating TSR at the business unit level will be our primary performance measure. It is an integrated measure of value creation requiring sales growth, progress on gross and operating margins and strong cash flow productivity. And over time we know that internal operating TSR results are highly correlated with external market TSR.

Second, we will focus business strategies and operate proven business models with more discipline. We will focus strategically on core businesses, our leading, growing, and value creating categories and brands and leading growing and value creating channels and customers, delivering consistently strong results in our core business is the largest contributor to shareholder value creation and important contributor to growth and an important enabler of investments in developing market, brand and product innovation.

Our strongest business unit in total company positions are in U.S. We need to ensure P&G's home market stays strong and growing. We will focus developing market investments in the categories and countries with largest size and price in the highest likelihood of winning. Developing markets driven by demographics and household income growth will continue to be a significant growth driver for our company.

We continue to focus the company’s portfolio, allocating resources to businesses where we can create value and continuing to exit those where we cannot. Productivity and innovation are the two biggest drivers of value creation. They should continue to be.

Innovation has always been a core strength. We’re committed to make productivity a core strength, systemic and not episodic. We’ll measure productivity. We’ll recognize it. We will reward it. Productivity is particularly important in a slower growth world and in an environment of increased volatility.

More productivity means more opportunities to invest in core business growth and developing market expansion and in brand and product innovation. We’re working to accelerate and strengthen our productivity and cost savings. We see opportunities across all elements of cost and mobilize to address the next round of productivity initiatives.

We’re working these projects in parallel, not sequentially and on shorter cycle times. Here is a quick look at some of the things we’re doing. We have opportunities to localize and regionalize supply chains in developing markets, improving customer service and reducing costs.

In developed markets, we have taken a blank sheet of paper look at supply chains, designing from the shopper and customer back. We’re studying options that will significantly reduce the number of manufacturing plants and distribution centers. We will build capabilities and drive synergies across categories, reduce cost and inventory all while improving customer responsiveness and service.

This will require investment but will generate very attractive returns. We will redesign and strengthen our go-to-market operations in North America and Europe to be more effective and more efficient. In Europe, we look to scale operations across all of Europe and across fewer larger country clusters.

We will evaluate organization design options to improve effectiveness and efficiency in developing markets. And we will move from a large centralized support staff model to leaner business unit based functional support with floated work from more shared sector and company services and more outsourced partnerships. We will improve marketing ROI through greater message clarity, optimize media and greater efficiency of non-media spending.

Third, we will improve our operating discipline. We simply have to execute better, more consistently and more reliably every day around the world to win with consumers and customers we serve. Execution is after all the only strategy they ever see, winning with consumers and winning with customers’ day in and day out is what it takes to generate leadership returns in this industry and that’s what we’re committed to do.

Fourth, we will reallocate some savings to make strategic investments in a very focused way, in product innovation, in go-to-market capabilities. These are two of the company's core strengths and two important sources of competitive advantage. They are both critical to winning the first and second moments of truth.

The changes we’re making in these four areas, reestablishing value creation as our primary measure of success, investing in innovation and go-to-market capabilities, accelerating productivity savings and improving operating discipline are important changes that we believe will improve performance.

We are going to build on the past year but we’re going to be more focused. We will commercialize brand and product innovations with excellence. We will prioritize productivity initiatives significantly simplifying and streamlining how we work together and we will bring a sense of urgency to realizing hard savings. We’ll focus on best-in-class execution and we will continue to invest selectively where needed to win.

Now I want to turn my attention to key themes that are at the heart of conversations we’ve been engaged in since the earnings call last month, balanced shareholder and consumer value equations. On our call, I talked about the importance of balance. And we want balance in all facets of our business strategy, top and bottom line, short, mid and long-term, developed and developing markets and in our category portfolios across brands, product segments and price tiers.

Balanced goal seek to deliver consistent, reliable, and sustainable sales earnings and cash flow growth. All three elements are critical to value creation at the operating business unit level and for the company as a whole. We intend the balance returns from the short-term with appropriate strategic investments in the mid and long-term.

Our challenge is to ensure the company is making good progress on near-term value creation while investing appropriately on opportunities that will be the main sources of growth five or 10 or more years from now, both are important.

We also need balance by geography. We currently have a reasonably well-balanced geographic portfolio. We are the leading consumer products business in U.S., which is the largest fastest-growing and most profitable developed market. And we now have the leading household and personal tier business in developing markets, both represent significant value creation opportunities, both warrant significant attention.

Achieving this balance requires focused on the largest opportunities where we have the best chance of winning. We continue to focus on striking the right balance, our market strategies, our planning horizons and across all the drivers of value creation.

The second big theme we've been discussing is consumer value, which is also about the balance in our brand and product portfolio. Some analysts and investors are concerned would become more promotional and are driving pricing down as a means to improve consumer value.

Yeah, we are continuously adjusting prices in countries, channels and customers around the world. We compete in a dynamic marketplace for shoppers and consumers. While there are weekly even daily adjustments, when you step back and you look at longer-term P&G trends, net pricing including all promotion and discounts has been a positive contributor to net sales growth for now nine years in a row and nine over the last 10 quarters.

Using the force, essentially no change in P&G’s percent of sales moved on promotion over the last three years. In most categories, our competitors promote at a higher rate. We prefer investment, brand and product innovation and brand equity over promotion. There is nothing strategic about promotion and nothing proprietary.

Other analyst and investors are concerned, we are too premium priced especially in a world where they believe everyone is trading down. Private label value share is up, one point in both the U.S. and Western Europe over the past three years. Not surprising given the financial crisis and recession we went through.

Value conscious consumers however do not shop only on price. All elements of the consumer value equation take on heightened importance when consumers are partying with their hard-earned money. Product quality, noticeable performance, benefit for critical dimensions of value and virtually every consumers purchase decision.

When we introduce new products with superior product benefits and communicate those benefits, we create a value accretive proposition for a group of consumers. For Crest 3D White’s the idea is a regimen of oral care products that work together to improve the visible whitening of teeth after as little as one day’s use.

Crest 3D White toothpaste offered over 20% premium to Crest complete, has grown market share in the U.S. for 40 consecutive months since launch. The Fusion family of male grooming and shaving products has grown value share for 30 consecutive quarters since launch.

Tide PODS was introduced last February at a 20% premium to base liquid Tide. Tide PODS has they time on now generated over $600 million in sales since launch and has grown to about 6% of the total laundry category in the U.S. and over 70% of the single-dose pack segment.

These results were delivered with essentially no merchandising support in a category that moves 40% to 50% of daily sales and promotion with trials still modest and consumers from all brands product forms and price tiers trying Tide PODS and high conversion and repurchase rates. This is a very exciting new product that consumers who use it seem to prefer.

Premium innovation is also driving sweeter sales mix in developing markets. We initially launched Oral-B toothpaste in Brazil across four price tiers. Since then we have added premium products to the portfolio. By the end of this fiscal year, we expect sales per unit to be up nearly 30% in just three years.

Premium innovations like 3D White have helped to grow Oral-B toothpaste values here to over 9% in Brazil, up more than 3 points versus year ago. And Oral-B sales in Brazil were up 57% last year.

There are consumers for whom a lower price is a more critical element of their personal value equation. We need to have brands and products that are relevant for them as well and we increasingly will. We have upgraded or introduced several mid-tier products in the U.S., the lighting consumers who are looking for superior product quality, performance and value at a lower price.

Pampers Baby Dry was recently improved. We recently upgraded Bounty basic towels at a 50% stronger than the leading bargain brand. Gillette Mach3 Sensitive Skin launched in January to address the needs of the 70% of man who believe they have sensitive skin.

We launched a new mid-tier skin care boutique called Olay Fresh Effects. We introduced I Am So Good in April, the brand’s first entry into the mid-price tier. I Am So Good features wholesome ingredients like chicken, fruit and vegetables, no dyes, no added sugar and no artificial preservatives. Sounds tasty, doesn’t it.

We have demonstrated over time that when we understand consumers and their needs and provide them with relevant performance benefits, we can generate profitable growth at the high-mid and even the lower end of the pricing ladder. Bounty and Charmin Basic are both great recent examples.

In fiscal 2005, we entered the mid tier in the U.S. paper towel and bask tissue categories with the launch of Bounty Basic and Charmin Basic. Both priced at about a 25% discount to the parent lines.

Both basic items generated attractive margins and comprised now about 15% of overall brand sales. When we launched the basic offerings, we continued innovating on the parent with a series of absorbency and strength upgrades.

With the launch of Basic Bounty, sales have grown at an average annual rate of above 5%. We’ve grown value share in eight of the last nine fiscal years adding nearly four points of market share growth.

Overall brand before tax margins has improved since the launch of the basic line. Retailers have also benefited as total category sales have grown for nine consecutive years at an average annual rate of more than 4%.

We experienced similar success with the launch of Charmin Basic. The brand’s value share sales and profit margins have each improved substantially and total category sales have grown more than 5% per year over the past nine years. These are clear examples of innovating and creating value for more consumers.

We have been innovating at both ends of the pricing ladder in hair care. In January, we launched the Pantene Expert collection, two super premium lines, Age Defy and Advanced plus Keratin Repair at a price premium of 200% to 250% versus base Pantene. We also launched the Vidal Sassoon Pro Series priced at 50% to 75% of base Pantene in the affordable Salon Segment.

Our baby care product innovation bundle that’s just now shipping in North America includes products in commercial innovation across the entire portfolio of diverse and white in the entire price tier spectrum. Design dryness and fit upgrades across the premium Pampers baby stages lineup.

On the other end of the portfolio Luvs upgraded with a new NightLock core to provide even better overnight dryness and protection. The performance of every Pampers and Luv’s diaper is being improved with a wetness indicator to help mom and dad know when it’s time to change. I never needed that indicator when I was doing that.

In male razors, we play in the super premium tier with the art of shaving. An $80 million plus business with the opening price point for a razor at $60. Gillette plays in the premium tier with the Fusion family. The premium tier represents 42% of category sales, our approximate share 87.

We also play in the mid tier with the Mach3 and Sensor. Here we have done an 80 share. And we play in the low price tier where we have about a 50 share. The last example of innovating up and down to increase value for consumers is North America Fabric care. In February -- February 2014 we will be launching a large bundle of innovation that’s spans brand product forms and price tiers.

Premium Tier is a laundry market in the U.S. is about $4.5 billion in value over half the category. We hold about an 85 share in that segment. In this tier, we are introducing the new Tide Plus collection, an upgrade of every one of our value added Tide liquid detergents.

These value added offerings currently generate over a billion dollars in sales a year. Product improvements include longer lasting freshness, Tide with Febreze, improved softness, Tide with the Touch Downy, brighter whites, Tide with bleach and deeper cleaning from Tide Febreee sport.

The line also includes a new product Tide Ultra Stain Release which removes, we estimate 99% of everyday stains. Ultra Stain Release is formulated with special stain removal ingredients and a new cap that lets consumers use Tide both as a pre-treator for really tough stains and a measuring cup for all loads. This re-stage will harmonize bottle and load sizes, simplify the shopping experience for shoppers and grow category value via modest price increase across the entire Plus lineup.

Effective this month, we are now supporting feature and display on both Tide PODS tubs and bags which should help spur consumer trial and more growth. In February, we will add extra large tub sizes which will meet the needs of consumers who want a more convenient Tide PODS pack.

We will also introduce Gain Flings, single load packs that leverage P&G’s proprietary product technology and provide gains consumer with better freshness and more cleaning power with of course the convenience of the new form. Flings will be priced at parity with Tide PODS resulting in a value creating trade-up opportunity.

Our recent premium price scent bead innovation, Downy Unstoppable, Gain Fireworks, have helped drive U.S. fabric enhancer value share to over 61%. This is up more than two points versus prior year. We will build on this momentum in February with the introduction of three new sizes of Downy Unstoppable and a new scent, Moonlight Breeze on Gain.

In addition, we are introducing new Tide Oxy a multipurpose stain remover that delivers superior laundry performance versus the current competitive product, as well as outstanding overall stain removal for floors around the house.

Our recent, sorry, finally, we will be introducing Tide Simply Clean & Fresh in the mid-priced tier of North America laundry detergents. This is about a $2 billion segment in which we are currently underdeveloped with about a 30 share.

Tide Simply Clean is a liquid detergent specifically designed with a cleaning and odor removal and freshness needs of mid-tier consumers in mind. At a price that’s affordable from most of that.

We are confident that our consumer understanding in pre-market testing have helped us design a mid-tier Tide Simply Tide that is very attractive to mid-tier consumers but not very interesting to current regular Tide users. This is exactly the same approach we use with Bounty and Charmin Basic.

You are going to hear us talking about both these themes, balance, brand and product portfolios and value for consumers at the high, mid and even the lower end of our categories.

Consumers have different benefit needs and wants, they have different value equation expectations and we aim to meet their needs with brands and products they prefer and can afford.

Balanced plans and a laser focus on value creation are critical to delivering results at the levels and consistency that we expect of ourselves. Our objective for fiscal 2014 is to build on the momentum last year, making this year another stepping stone to P&G’s long-term growth objectives.

We will continue to make choice-ful investments in core businesses in the most promising developing markets and on our biggest brand and product innovation opportunities. We will aggressively drive productivity, cost savings and cash productivity.

We are cautious given some of the headwinds Jon mentioned, but we are also encouraged by business trends and several important markets and by consumers and customer’s response to our brand and product innovations. We are confident in the clarity and focus of our direction going forward. We will remain focused on value creation for consumers and shareholders.

Now we would be very happy to take any questions that you have. Thank you.

Question-and-Answer Session

Lauren Lieberman - Barclays

I’ll get and started.

A.G. Lafley


Lauren Lieberman - Barclays

Yeah. Lucky guy. I can’t open it up what is going to be a pretty broad question still, which is around execution, I think both on the conference call last for the quarter and then today what you pointed to a couple of times is the need to improve execution and that is a very broad statement.

And so without doing too much pointing finger I think it might be helpful for all of us, in your three months back where do you think execution has broken down? Why -- what -- where is that the organization and how did one change execution of that just sort of the broad label that can be blamed for a lot of things from a revenue standpoint not going in the right direction?

A.G. Lafley

There is no, the issue isn’t blame. I spent all my 20s working in retail. I spent most of the last 37 years working in consumer staples. These are both highly executional industries, right. Nothing happens until that brand or product shows up in a venue where it can be purchased, whether it’s online, whether it’s open market in the developing world, whether it’s a big box or small box discount in the developed world.

And the company I grew up with, the company I spent 33 years in the first shift was very focused on execution and I’m just elevating the focus on execution, everybody gets it. They understand it. When we execute, we like the results. What’s more important, consumers like the results better, customers like the results better and in the end we like the results better and our shareholder like the results better.

So all I am trying to do is elevate, if you ask me, what are the three to five capabilities that you are absolutely positively have to have to win in fast moving consumer products? I would say execution is one of them. And I am just calling it out. Okay, I am calling it out.

Hey, we are going to have, we are not going to execute perfectly. I am sure somewhere in one of the 160 countries today and one of the 50 brands that we are messing up on some pieces of execution but I would hope that by and large every day we execute little bit better, and there are all kinds of indicators to that and we are tracking them. But that’s the only point here. It wasn’t -- we executed well and then we executed badly, I’m just elevating execution so we were on it going forward.

Lauren Lieberman - Barclays

Okay. But we are sort of seeing that P&G has executed poorly recently, right? So is it…

A.G. Lafley

I think -- I think it depends.

Lauren Lieberman - Barclays

…shows up in the stories that the sales person like their…

A.G. Lafley

It’s everything. It’s everybody on the team has a responsibility for the execution of, just frankly the daily turn business, okay, which is most of our business. I just spent too long talking about brand and product innovation programs that a customer like Wal-Mart, that’s less than 10% of our business, right? 90 plus % is turn.

We have to execute every one of those turns. We can’t have a slot that doesn’t have the right inventory in the right place at the right time. That’s all it is about. It is not about blame. It is not to have past, it’s about learn from the past, focus on the future delivering the present.

Unidentified Participant

There is one…..

A.G. Lafley

Yeah. There is. Did we talk too fast?

Lauren Lieberman - Barclays


A.G. Lafley

Okay. I was watching at clock, my eye on that clock.

Unidentified Analyst

A.G. you mentioned continually reviewing the portfolio, possibility existing some the decision we’re contributing? Can you give us a flavor of what to expect over the next couple of years there and may be what percentage of your business is you think, maybe under the guns so to speak?

A.G. Lafley

You know I am going to disappoint you by telling you that I can’t give you any real information on that question. But I will say this, already been through the portfolio in detail, already discussed with the management team, already discussed more than once with the Directors and the Board. We are on it. We know what doesn’t fits strategically and what does. We know what’s underperforming and what’s performing. We always have in my view there will be few moves that will be obvious and we’ll announce some when it’s be appropriate time and there are always a few businesses that are on what I would call a watch list, right.

But and in the retail world 80% of the profit came from 20% of the items, that’s not the way it works in consumer staples. But I would say most of our businesses that we developed in the last 10 or 20 years are now core and that probably represents 90 plus percent of what we have and we are looking at the rest. Yeah.

Unidentified Analyst

The new product introductions in beauty are nice higher end, but the last six years that I’ve watched your company quarter after quarter after quarter you’ve underperformed and I don’t want to call these products abundant on a broken leg, but it seems like structurally you have some issues in beauty that you are not, hardly win?

A.G. Lafley

Okay. Look, we are in the show-me stage in beauty, okay. And I’m personally focused and team’s focused on getting two things done, one, turning around Olay and getting it growing again in the critical core markets. And two, getting Pantene going in the U.S., okay.

And I wish I could tell you we can turn on a dime but we’re pretty much as I said earlier we sold the programs even in the U.S. through the second half of this fiscal year, right. So it’s coming and I’m bringing a real sense of urgency.

One thing you can check out and 19 -- in 2000 for the first time, in 163 years, we put together some odds and ends and said we were in the beauty business. In 2000, Apple was a $7 billion company. We had a $7 billion collection of beauty brands.

2007, Apple was a $23 billion company. We had a $22 plus billion collection of beauty brands. We took a Oil of Olay and turned it from a few hundred million into $2 billion. I’d rather start fixing it at $2 billion than at $200 million, it still has the strongest equity in a number of markets.

I’m glad. I’m not starting back where we started 15 years ago. Pantene was an after thought. It didn’t even show up in the acquisitions reco when we were the white knight and picked up RVI. It was this dinky little brand that showed up on department store shelves with a plastic cap and a plastic package.

We’ve turned it into a 3 billion plus hair care brand and frankly, it’s doing quite well in most markets around the world. So mainly point is yeah, we had a huge stall with the industry when the financial prices and recession hit and we didn’t come out of it.

And we own that and we’re on it. And we change -- some of the organizations change, some of the people got it going are back and we’re in the show-me stage. You’re right.

Lauren Lieberman - Barclays

Anyways we’ll stop there and move across the hall.

A.G. Lafley

Okay. Great.

Lauren Lieberman - Barclays


A.G. Lafley

Thank you.

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