NEW YORK (CNNfn) - The head of Procter & Gamble Co. - a controversial corporate veteran who tried to shake up the venerable consumer products maker through an aggressive growth strategy - quit abruptly Thursday amid the company's ongoing profit woes.|
Durk Jager, who served as CEO of Cincinnati-based P&G for a turbulent year and a half, resigned, effective immediately. Jager, who also served as president and chairman, spearheaded an ambitious restructuring effort, dubbed "Organization 2005," which was intended to boost sales and profits by introducing an array of new products and by closing plants and eliminating jobs.
The six-year, $1.9 billion effort, however, cut into profits at the largest U.S. household products company - a 162-year-old blue-chip firm that traditionally had been known for steady earnings growth and conservative management.
Coinciding with Jager's resignation, the maker of Tide detergent and Crest toothpaste lowered its fiscal fourth-quarter earnings estimates, saying the results for the April-June period would be flat compared with year-earlier figures. The company now forecasts profits of 55 cents per share, compared with earlier expectations of about 64 cents.
Procter & Gamble (PG: Research, Estimates) had already reduced 2000 earnings forecasts in March, triggering a sharp drop in the company's share price.
P&G stock -- which was the worst performing component of the Dow industrial average in the first quarter -- lost another 4-5/16, or 7 percent, to 56-15/16 Thursday on the New York Stock Exchange. The stock lost about 48 percent of its value in the first three months of the year.
Jager's replacement is Alan Lafley, the president of P&G's global beauty business and its North American unit. Former CEO John E. Pepper, who retired from the company in 1999, will return as chairman of the board.
While touting Jager's "visionary leadership," the company's new leaders distanced themselves from the restructuring program he initiated.
They said the company's growth initiatives have taken their toll on financial performance, and indicated they would focus on boosting sales of core products rather than channeling efforts into entering new markets all at once.
The company has not been "delivering significant earnings growth that the business is known for," Lafley said in a conference call with Wall Street analysts. "In hindsight, we changed too much, too fast."
Lafley said that over the next six weeks, he will sift through the company's operations to make choices on its product offerings, saying he would focus on the "tough choices" needed to rein in costs.
In a statement, the Dutch-born Jager said it was "a personal decision" to step aside. But he acknowledged the company's problems under his tenure.
"I am proud of the vision we set out to achieve with Organization 2005, and we've made important progress," he said. "It's unfortunate our progress in stepping up top-line sales growth resulted in earnings disappointments."
A tough six months
Procter & Gamble has had a rocky year so far.
In January, news leaked that the company was considering stepping into the takeover fight as a potential "white knight" suitor for fast-growing drug maker Warner-Lambert Co. (WLA: Research, Estimates) in an attempt to boost its small pharmaceutical business.
Shareholders - concerned that the company's core business would be diluted through such a massive acquisition -- immediately dumped the stock, and P&G management announced that it was halting talks with Warner and its then-merger partner American Home Products Corp. (AHP: Research, Estimates) Warner-Lambert now is being acquired by Pfizer Inc. (PFE: Research, Estimates).
Then, on March 7, P&G warned that its 2000 earnings would fall well short of expectations, citing higher raw materials costs and price pressures. P&G is facing an increasing number of rivals, including many generic brands that produce cheaper versions of many of its core products.
The news sent the company's stock to its lowest level in about three years. Then in April, Procter & Gamble posted an 18 percent decline in third-quarter profit, its first decline in eight years.
In warning Thursday that fourth-quarter results would fall short of estimates, P&G blamed its performance woes on lower volume growth and increased competition as well as the impact on the weaker euro on European sales.
Fourth-quarter sales are projected to climb only 2 percent to 3 percent.
For the full year, earnings are now expected to rise a modest 4 percent, the company said.
The company has a tough job ahead in trying to increase profits, said Tony Vento, a consumer products analyst at Edward Jones.
Under Jager, "they tried to accelerate the sales growth too quickly and lost sight of the earnings side of the equation," he said. "Their expenses rose too quickly and consequently they disappointed investors."
Vento said that Lafley, the new CEO, has a tough job ahead to revitalize the company.
"He has his work cut out for him, and we'll see if he can handle the job," he said.
The company said Thursday that it is confident it will rebound strongly next year, forecasting that earnings-per-share growth is expected to be 11 percent to 13 percent above revised 2000 expectations. Industry analysts had anticipated 2001 growth of at least 13 percent - gains that many observers doubted the troubled company could achieve.
Lafley said that while it's been a "very tough six months for all of us ... there is confidence in the direction we're headed."
However, some industry observers say they expect more trouble ahead for the company.
"If you look at the magnitude of some of the issues facing the company, these are not things that are going to be turned overnight," said one Wall Street analyst, who spoke to the Reuters news agency on condition of anonymity.
"The issue they have today is one of balancing top-line or sales growth with earnings growth. They also tried to do too much too fast, and press too hard on the business to get the growth being promised to the investment community," the analyst said.