P&G Will Divest Duracell in Biggest Piece of Brand Culling

Though Long Expected, Move Comes As Surprise Given Lafley's August Comments

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Procter & Gamble Co. said it will divest its Duracell battery business as the company takes the biggest step yet to make good on plans to sell or merge as many as 100 of its brands with the least growth or profit potential.

Duracell has global sales of around $2 billion, according to P&G, with just under $1.1 billion in U.S. retail sales, according to Nielsen data that exclude some club and other outlets where the brand is sold. P&G spent just under $50 million on measured media for Duracell last year, and recently named Anomaly as its new agency of record.

P&G has long been expected by some analysts to divest Duracell someday, almost since its acquisition as part of the 2005 Gillette deal. But timing of the move comes as a bit of surprise, given that Chairman-CEO A.G. Lafley's description of his brand culling plan in August seemed to suggest no billion-dollar brands would be included.

P&G plans to divest 90 to 100 brands overall, leaving behind 70 to 80 of its best performing ones. But in a media conference call today, Chief Financial Officer Jon Moeller revealed P&G was actually around a quarter of the way into that process, which includes the divestiture of its pet-food business to Mars and Spectrum Brands that was begun before the August announcement.

Including pet care and Duracell businesses, P&G would be around halfway through its divestiture plan on a sales basis, which Mr. Lafley said would amount to around 10% or $8 billion of company sales.

Duracell is the No. 1 brand in the battery business in the U.S. and globally, Mr. Moeller said. And it had a major sales gain last year in the U.S. on the strength of pushing rival Energizer out of a category exclusive at Sam's Club. But the brand hasn't been able to hold all of those gains, with its share down 0.7 points in the four weeks ended Sept. 27, according to Nielsen data from Deutsche Bank. Duracell's sales decline pulled P&G's entire fabric and home-care business down to flat sales last quarter

The disposable battery business has been in long-term decline as consumers turn to smartphones and other devices that use different types of batteries. Energizer Holdings earlier this year announced a split of its battery business from its more lucrative personal-care business.

P&G prefers to spin Duracell off as a separate company, Mr. Moeller said. But as was the case with the divestiture of Folgers in 2008, where P&G initially announced a spinoff and J.M. Smucker Co. ultimately moved to acquire the brand, things could change.

The Duracell announcement came as P&G delivered earnings for its fiscal first quarter that fell just short of analyst forecasts, with earnings per share of $1.07 vs. forecasts of $1.08, and sales of $20.8 billion vs forecasts of $20.9 billion. Foreign exchange losses more than offset what Mr. Moeller said were around $100 million in "marketing savings" in the quarter.

Most big household and personal-care players to report so far have fallen short of analyst sales expectations last quarter, including Colgate-Palmolive Co., which today reported a 3.5% organic sales increase for last quarter. P&G's organic sales growth rounded up to 2%, similar to Unilever's 2.1%.

But while Unilever yesterday blamed a 20% fall in China sales on retailer restocking for its sluggish sales growth, Mr. Moeller said P&G experienced no such issues in China. He said the market grew about 6% last quarter.

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