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2013 Was the Start of Procter & Gamble's Transformation

Looking back years from now, 2013 will stand out to investors as a year of transition for Procter & Gamble (NYSE: PG  ) : The maker of consumer staples underwent a management transition, one that promises to transform Procter & Gamble in the years to come. The Dow Jones Industrial Average (DJINDICES: ^DJI  ) component rose more than 21% in 2013, underperforming the index, but outperforming competitor Unilever (NYSE: UL  ) .

PG Chart

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Bob McDonald retires
The single biggest event for Procter & Gamble in 2013 was the resignation of CEO Bob McDonald. Over the course of his tenure as Procter & Gamble's CEO, the company had underperformed its rivals, including Unilever -- a fact reiterated by activist investor Bill Ackman, whose Pershing Square hedge fund holds a stake in the company. In April, Procter & Gamble reported a disappointing quarter: Revenue came in weaker than analysts had expected, while guidance for the future was fairly bleak.

Perhaps because of those disappointing results, Ackman's push for new management was successful. Bob McDonald resigned in May, replaced by former Procter & Gamble CEO AG Lafley, who emerged from retirement. In the past, Lafley had successfully led Procter & Gamble, and though investors shouldn't expect him to remain CEO for too long, he began shaking up the company soon after taking the reins.

Remaking the company for the long term
One of Lafley's first moves was to elevate four senior executives to run major business units and report directly to him. It is widely expected that one of these four will ultimately replace Lafley in the coming years, though the company has yet to set out a definitive succession plan. Other steps have been taken to remake Procter & Gamble -- according to Bloomberg, the company is currently working on a reorganization of its overseas units.

Some of Lafley's changes may have already borne fruit. In Lafley's first quarter back as CEO, Procter & Gamble beat Wall Street analysts' expectations for earnings, and said it expected to grow in 2014. Then, in October, Procter & Gamble posted earnings that were in line with analyst expectations, while it reiterated its previous, positive guidance.

Overall, a solid year for the consumer-products giant
Ultimately, most investors in Procter & Gamble are likely there for the dividend. That grew in 2013 -- in April, the company announced a 7% increase, the 57th consecutive dividend raise on record. At current levels, Procter & Gamble is currently yielding about 2.90%, and if its ongoing transformation is successful, investors should anticipate another dividend increase in 2014.

Altogether, 2013 was a fairly solid year for the Dow Jones component. Although it underperformed its index, investors were better off holding Procter & Gamble then they were rival Unilever. With Lafley back in charge, Procter & Gamble won't be the same company in future quarters -- whether that results in success or failure, 2013 will stand out as the year the transformation started.

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Related Tickers

9/23/2016 4:55 PM
^DJI $18261.45 Down -131.01 -0.71%
PG $87.76 Down -1.23 -1.38%
Procter and Gamble CAPS Rating: ****
UL $47.02 Down -0.43 -0.91%
Unilever CAPS Rating: *****