CINCINNATI, April 30 /PRNewswire-FirstCall/ -- The Procter & Gamble
Company (NYSE: PG) announced diluted net earnings per share growth of 11
percent to $0.82 per share. Earnings were driven by net sales growth,
continuing focus on cost control and Gillette synergy benefits, which more
than offset higher commodity costs. Operating profit margin improved 60-basis
points, driving a 13 percent increase in operating profit. Net sales
increased nine percent to $20.5 billion. Organic volume and sales were both
up five percent. Five of the company's six segments delivered mid-single
digit or higher organic volume growth.
"This quarter is yet another demonstration of the power of P&G's product
category and geographic diversification and disciplined focus on cash and cost
productivity," said A.G. Lafley, chairman of the board and chief executive
officer. "P&G delivered strong results in-line with long-term targets in a
challenging economic and competitive environment with broad-based sales and
share growth, earnings growth and overhead cost improvement."
Executive Summary
-- Net sales increased nine percent to $20.5 billion on four percent
volume growth. Growth was broad-based as every segment delivered year-
on-year volume and net sales growth. Organic volume and organic sales,
which exclude the impacts of acquisitions, divestitures and foreign
exchange, each grew five percent.
-- Operating profit was up 13 percent to $4.1 billion. Operating margin
improved 60-basis points as a result of cost savings projects, Gillette
synergy benefits, improved overhead costs and volume leverage, which
more than offset higher commodity costs.
-- Diluted net earnings per share increased 11 percent to $0.82 for the
quarter.
-- Operating cash flow was $4.3 billion for the quarter. Free cash flow
was 136% of net earnings for the quarter and 109% year-to-date, well
ahead of the company's 90% annual target.
Financial Highlights
Net sales for the quarter increased nine percent to $20.5 billion. Volume
was up four percent, including a negative one percent impact from the Western
European Tissue divestiture. Favorable foreign exchange added five percent to
net sales. Organic sales grew ahead of organic volume in both developed and
developing regions. Disproportionate growth in developing regions drove a
negative one percent mix impact. Price increases had a positive one percent
impact on net sales. Volume grew primarily behind successful product
initiatives and continued double-digit volume growth in developing regions.
Growth was broad-based as 18 of our 22 top categories, representing over 90%
of total net sales, delivered year-on-year organic volume growth. A number of
the company's key brands, including Always, Ariel, Dolce & Gabbana, Febreze,
Fusion, Gain, Head & Shoulders, Naturella, Pampers, Pringles, Rejoice, Venus
and Vicks, delivered at least high-single digit global volume growth.
Diluted net earnings per share increased 11 percent for the quarter to
$0.82 behind strong operating profit growth. Operating profit was up 13
percent as a result of higher net sales and improved operating margin.
Operating margin was up 60-basis points as a reduction in overhead spending as
a percent of net sales more than offset higher commodity and energy costs.
Gross margin was down 30-basis points to 51.3% of net sales during the
quarter. Higher commodity and energy costs had a negative impact of over 220-
basis points. Most of this negative cost impact was offset by volume
leverage, pricing and cost savings projects.
Selling, general and administrative expenses (SG&A) were 31.2% of net
sales, an 80-basis point improvement versus the prior year period due to lower
overhead spending as a percent of net sales. Overhead spending improved as a
result of increased productivity, Gillette synergies and scale leverage.
Marketing spending was up nine percent, in-line with net sales growth.
Other non-operating income for the quarter was down $159 million versus
the prior-year period primarily due to higher divestiture gains and investment
income in the base period. Interest expense increased $85 million largely due
to higher debt levels to support the company's share repurchase program.
Operating cash flow was $4.3 billion for the quarter, driven primarily by
strong earnings results, an unusually large deferred tax benefit and a
decrease in accounts receivable. Free cash flow was 136% of net earnings for
the quarter, well ahead of the company's 90% annual target. Capital
expenditures were 3.3% of net sales during the quarter.
The company repurchased $2.6 billion of P&G stock during the quarter as
part of the company's previously announced share repurchase program. The
company has repurchased $8.0 billion of P&G stock since the inception of this
program in July 2007, a level consistent with the company's three year $24 -
$30 billion share repurchase plan. Combined with $3.4 billion in dividends,
P&G has distributed $11.4 billion to shareholders fiscal year to date, or 126%
of net earnings.
Business Segment Discussion
The following provides perspective on the company's January - March
quarter results by business segment.
Beauty GBU
-- Beauty net sales increased nine percent for the quarter to $4.7
billion. Net sales were up on three percent volume growth and a six
percent favorable foreign exchange impact. Volume was up mid-single
digits in Hair Color behind the Nice 'N Easy Perfect 10 launch and in
Cosmetics behind the Cover Girl Lash Blast mascara initiative. Retail
Hair Care volume was up mid-single digits as high-teens growth on Head
& Shoulders and double-digit growth on Rejoice were partially offset by
a decline on Pantene in North America. Organic volume in Prestige
Fragrances was up mid-single digits as a result of new product launches
on Gucci, Hugo Boss and Dolce & Gabbana. All-in volume on Prestige
Fragrances was up low-single digits due to minor brand divestitures.
Professional Hair Care shipments were in-line with the prior year
period as strong growth in Central and Eastern Europe was offset by a
low-single digit decline in developed markets. Net earnings in Beauty
were down two percent to $589 million as the impact of higher net sales
was more than offset by higher commodity costs and base period gains
from minor Wella fragrance brand divestitures.
-- Grooming net sales increased 13 percent to $2.0 billion behind six
percent volume growth and a seven percent favorable foreign exchange
impact. Price increases taken across premium shaving systems added two
percent to net sales. Product mix had a negative two percent impact on
net sales as favorable mix from growth on Fusion was more than offset
by a negative mix impact from disproportionate growth in developing
regions. Blades & Razors volume was up high-single digits behind
double-digit volume growth in developing regions on the successful
expansion of Fusion and the launch of Venus Embrace in North America.
These gains more than offset the base period impact of pipeline volume
related to the Fusion launch in several Western European markets.
Fusion will deliver more than $1 billion in net sales this fiscal year,
making it P&G's 24th billion dollar brand and the fastest ever to reach
this milestone, including Mach3. Blades & Razors net sales grew
significantly ahead of volume as favorable product mix on Fusion from
the business' trade-up strategy, higher pricing and favorable foreign
exchange more than offset the impact of disproportionate developing
region growth. Braun volume was down mid-single digits. High-single
digit volume growth in developing regions was more than offset by
softness in Western Europe and lower volume in home appliances
resulting from supply constraints at a contract manufacturer and the
previously announced exit of the U.S. home appliances business. Net
earnings in Grooming were up 30 percent for the quarter to $403 million
behind higher net sales, lower overhead spending and a more profitable
product mix.
Health & Well-Being GBU
-- Health Care net sales were up 11 percent during the quarter to $3.7
billion. Net sales growth was driven by a six percent increase in
volume and a six percent favorable foreign exchange impact, partially
offset by a negative one percent mix impact. Feminine Care volume was
up high-single digits behind double-digit growth on Naturella and high-
single digit growth on Always. Oral Care volume increased mid-single
digits behind the Crest and Oral-B brands. Volume in Pharmaceuticals
and Personal Health was up mid-single digits as the addition of the SPD
Swiss Precision Diagnostics GmbH joint venture and high-single digit
growth on Vicks more than offset low-single digit growth in
Pharmaceuticals. Net earnings in Health Care were up 15 percent to
$617 million behind net sales growth and improved overhead expenses as
a percent of net sales.
-- Snacks, Coffee and Pet Care net sales increased 11 percent to $1.2
billion. Net sales were up as a result of a five percent pricing
impact, four percent volume growth and three points of favorable
foreign exchange, partially offset by a negative one percent product
mix impact. Snacks volume increased double-digits driven by the
Pringles Rice Infusion and Pringles Extreme Flavors initiatives.
Coffee volume was up low-single digits behind the Dunkin' Donuts(R)
license agreement, which was not in the year-ago period. Pet Care
volume was down low-single digits due to continued impacts from the
voluntary wet pet food recall. Net earnings in Snacks, Coffee and Pet
Care were down nine percent to $105 million due to the receipt in the
base period of a Hurricane Katrina insurance payment. The impact of
higher net sales in the current quarter was partially offset by higher
commodity costs.
Household Care GBU
-- Fabric Care and Home Care net sales increased 10 percent to $5.8
billion on six percent volume growth. Favorable foreign exchange added
five percent to net sales, but was partially offset by a negative one
percent mix impact driven primarily by disproportionate growth in
developing regions. Fabric Care volume was up high-single digits
behind double-digit developing region growth and strong initiative
results on Ariel, Downy, Gain and Tide, including continued success on
the liquid laundry detergent compaction expansion in North America.
Home Care volume was up mid-single digits as a result of continued
success on Febreze Candles and the expansion of Fairy auto-dishwashing
in Western Europe. Batteries volume was up mid-single digits as strong
growth in developing regions more than offset market softness in North
America. Net earnings in Fabric Care and Home Care increased 12
percent to $781 million as higher net sales, cost savings projects and
lower overhead expenses as a percent of net sales more than offset
higher commodity costs.
-- Baby Care and Family Care net sales increased eight percent to $3.5
billion. Volume was up one percent, including the impact of the
Western European Tissue divestiture. Price increases in both Baby Care
and Family Care and favorable product mix each contributed one percent
to net sales and favorable foreign exchange added five percent.
Organic sales were up eight percent behind a seven percent increase in
organic volume. Baby Care volume was up high-single digits behind
double-digit growth in developing regions and continued success on Baby
Dry and Swaddlers in developed regions. Family Care organic volume was
up high-single digits behind strong growth on both Charmin and Bounty.
Net earnings in Baby Care and Family Care were up 23 percent to $471
million as net sales growth, cost savings projects and a more
profitable product mix more than offset higher commodity costs.
Fiscal Year and April - June Quarter Guidance
For the 2008 fiscal year, the company expects organic volume and organic
sales to both grow approximately five percent. Pricing is expected to add one
percentage point to net sales growth, as the company has announced price
increases to offset the impact from higher materials and energy costs. Mix is
estimated to reduce net sales growth by one percent due to rapid growth of
developing markets. In addition, foreign exchange is expected to add
approximately five percent to net sales, and the net impact of acquisitions
and divestitures is expected to reduce net sales by one percent. In total,
the company expects all-in net sales to grow approximately nine percent versus
the prior fiscal year.
P&G now expects earnings per share to be in the range of $3.48 to $3.50
for fiscal year 2008. This is an increase compared to the company's prior
guidance range of $3.46 to $3.50 due to the strong January - March quarter
results. The company now estimates operating margins to improve by 20 or more
basis points for the year, as overhead productivity improvements, pricing and
cost savings programs should more than offset the impact of higher materials
and energy costs.
For the April - June quarter, P&G expects organic sales growth of four to
six percent. This includes a net pricing and mix benefit of approximately one
percent. Foreign exchange is estimated to add five to six percent to net
sales growth, and the net impact of acquisitions and divestitures is expected
to reduce net sales by one to two percent. Total net sales are expected to
increase eight to ten percent.
Operating margins are expected to improve modestly as the benefits from
overhead productivity savings, pricing and other cost savings programs should
more than offset the impact of higher input costs. Gross margins are expected
to decline versus prior year. The tax rate for the quarter is estimated to be
about 28%. The company expects earnings per share to be in the range of $0.76
to $0.78 per share of the fourth quarter.
Forward Looking Statements
All statements, other than statements of historical fact included in this
release, are forward-looking statements, as that term is defined in the
Private Securities Litigation Reform Act of 1995. Such statements are based on
financial data, market assumptions and business plans available only as of the
time the statements are made, which may become out of date or incomplete. We
assume no obligation to update any forward-looking statement as a result of
new information, future events or other factors. Forward-looking statements
are inherently uncertain, and investors must recognize that events could
differ significantly from our expectations. In addition to the risks and
uncertainties noted in this release, there are certain factors that could
cause actual results to differ materially from those anticipated by some of
the statements made. These include: (1) the ability to achieve business plans,
including with respect to lower income consumers and growing existing sales
and volume profitably despite high levels of competitive activity, especially
with respect to the product categories and geographical markets (including
developing markets) in which the Company has chosen to focus; (2) the ability
to successfully execute, manage and integrate key acquisitions and mergers,
including (i) the Domination and Profit Transfer Agreement with Wella, and
(ii) the Company's merger with The Gillette Company, and to achieve the cost
and growth synergies in accordance with the stated goals of these
transactions; (3) the ability to manage and maintain key customer
relationships; (4) the ability to maintain key manufacturing and supply
sources (including sole supplier and plant manufacturing sources); (5) the
ability to successfully manage regulatory, tax and legal matters (including
product liability, patent, and intellectual property matters as well as those
related to the integration of Gillette and its subsidiaries), and to resolve
pending matters within current estimates; (6) the ability to successfully
implement, achieve and sustain cost improvement plans in manufacturing and
overhead areas, including the Company's outsourcing projects; (7) the ability
to successfully manage currency (including currency issues in volatile
countries), debt, interest rate and commodity cost exposures; (8) the ability
to manage continued global political and/or economic uncertainty and
disruptions, especially in the Company's significant geographical markets, as
well as any political and/or economic uncertainty and disruptions due to
terrorist activities; (9) the ability to successfully manage competitive
factors, including prices, promotional incentives and trade terms for
products; (10) the ability to obtain patents and respond to technological
advances attained by competitors and patents granted to competitors; (11) the
ability to successfully manage increases in the prices of raw materials used
to make the Company's products; (12) the ability to stay close to consumers in
an era of increased media fragmentation; (13) the ability to stay on the
leading edge of innovation and maintain a positive reputation on our brands;
and (14) the ability to successfully separate the company's coffee business.
For additional information concerning factors that could cause actual results
to materially differ from those projected herein, please refer to our most
recent 10-K, 10-Q and 8-K reports.
About Procter & Gamble
Three billion times a day, P&G brands touch the lives of people around the
world. The company has one of the strongest portfolios of trusted, quality,
leadership brands, including Pampers(R), Tide(R), Ariel(R), Always(R),
Whisper(R), Pantene(R), Mach3(R), Bounty(R), Dawn(R), Gain(R), Pringles(R),
Folgers(R), Charmin(R
