Procter & Gamble is set to split its Duracell battery business into a new stand-alone company, as part of a broader strategy.
Specific plans for the battery brand exit have not been decided, but P&G says it is leaning toward offering P&G shareholders the chance to swap some P&G shares for new Duracell stock. The company expects the transaction to occur in the latter half of 2015.
“We greatly appreciate the contributions of our Duracell employees. Since we acquired the business in 2005 as part of Gillette, Duracell has strengthened its position as the global market leader in the battery category,” says CEO A.G. Lafley. “It’s a business with attractive operating profit margins and a history of strong cash generation. I’m confident the business and its employees will continue to thrive as its own company.”
The move affects roughly 2 700 Duracell employees worldwide, but very few P&G employees in Cincinnati. Duracell’s headquarters are in Bethel, Connecticut, and Geneva, Switzerland.
The separation will cut three U.S. factories from P&G: Cleveland, Tennessee; Lancaster, South Carolina; and La Grange, Georgia. Two international plants will also be impacted: Aarschot in Belgium and Dong Guan in China. There are also regional hubs in Singapore and Panama City.
The Enquirer has reported P&G was mulling a Duracell divestiture among others. The move comes as P&G is wrapping up the last piece of its sale of its Iams and Eukanuba pet food business, which the company announced it was exiting in spring.
P&G acquired the world’s number one battery brand when it bought Gillette in 2005, but it has never meshed well with the company’s other products.
Duracell boasts more than 25% of the worldwide battery market, but its sluggish growth has long made it a target for P&G divestiture. Analysts estimate total Duracell sales have fluctuated between $2-billion and $2,5-billion in the last five years.
Analysts say Duracell’s mainstay – non-rechargeable, disposable alkaline batteries – has seen demand wane while a worldwide explosion in electronic devices such as cellular phones and tablets has driven sales of re-chargeable batteries.
To jump start growth at P&G, Lafley announced in August the company would shed up to 100 non-core brands that were not winning new customers. While most would be small, he says in an Enquirer interview he would cut even a $2-billion, if it wasn’t performing.
The announcement came as P&G reported its first quarter results, which took a hit as P&G wrote down Duracell assets.
P&G reported a $2-billion profit for its quarter ended Sept. 30 – down 34% from the same period a year ago. But accounting was to blame: the company recorded a $932 million non-cash charge as P&G wrote down Duracell’s goodwill and intangible assets.
Core earnings were $1.07 per share – meeting Wall Street expectations, while the company’s flat $20,8-billion in sales were better than a 0,8% decline anticipated by analysts.
“P&G’s first quarter results were in-line with our expectations, despite a very difficult operating environment,” Lafley says.
Wall Street analysts forecast the company would report a $2,9-billion profit before one-time items on sales of $20,8-billion, according to Bloomberg.
Last year, P&G reported a $3-billion profit on sale of $21,2-billion.
Organic sales – which exclude foreign exchange, acquisitions and divestitures – rose 2%.