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SMALL BUSINESS
P&G Reports $0.82 EPS, Up 11%, On 13% Operating Profit 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
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
Diluted net earnings per share increased 11 percent for the quarter to
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
Operating cash flow was
The company repurchased
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
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
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), Downy(R), Lenor(R), Iams(R), Crest(R), Oral-B(R), Actonel(R), Duracell(R), Olay(R), Head & Shoulders(R), Wella(R), Gillette(R), and Braun(R). The P&G community consists of 138,000 employees working in over 80 countries worldwide. Please visit http://www.pg.com for the latest news and in-depth information about P&G and its brands.
The Procter & Gamble Company
Exhibit 1: Non-GAAP Measures
In accordance with the SEC's Regulation G, the following provides definitions of the non-GAAP measures used in the earnings release and the reconciliation to the most closely related GAAP measure.
Organic Sales Growth. Organic sales growth is a non-GAAP measure of sales growth excluding the impacts of acquisitions, divestitures and foreign exchange from year-over-year comparisons. The company believes this provides investors with a more complete understanding of underlying sales trends by providing sales growth on a consistent basis. Organic sales is also one of the measures used to evaluate senior management and is a factor in determining their at-risk compensation.
The reconciliation of reported net sales growth to organic sales in the January - March 2008 quarter:
Baby Care Total & Family P&G Care
Net Sales Growth 9% 8% Less: Foreign Exchange Impact -5% -5% Less: Acquisition/Divestiture Impact +1% +5% Organic Sales Growth 5% 8%
Free Cash Flow. Free cash flow is defined as operating cash flow less capital spending. Management views free cash flow as an important measure because it is one factor in determining the amount of cash available for dividends and discretionary investment. Free cash flow is also one of the measures used to evaluate senior management and is a factor in determining their at-risk compensation.
Free Cash Flow Productivity. Free cash flow productivity is defined as the ratio of free cash flow to net earnings. The company's long-term target is to generate free cash at or above 90 percent of net earnings. Free cash flow is also one of the measures used to evaluate senior management and is a factor in determining their at-risk compensation.
The reconciliation of free cash flow and free cash flow productivity is provided below ($ millions):
Operating Capital Free Net Free Cash Flow Cash Flow Spending Cash Flow Earnings Productivity
Jul - Mar '08 $11,718 $(1,852) $9,866 $9,059 109% Jan - Mar '08 $4,347 $(668) $3,679 $2,710 136%
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES (Amounts in Millions Except Per Share Amounts) Consolidated Earnings Information
JFM QUARTER FYTD % 3/31/ 3/31/ % JFM 08 JFM 07 CHG 2008 2007 CHG
NET SALES $20,463 $18,694 9 % $62,237 $57,204 9 % COST OF PRODUCTS SOLD 9,974 9,057 10 % 29,887 27,210 10 % GROSS MARGIN 10,489 9,637 9 % 32,350 29,994 8 % SELLING, GENERAL & ADMINISTRATIVE EXPENSE 6,378 5,991 6 % 19,107 17,945 6 % OPERATING INCOME 4,111 3,646 13 % 13,243 12,049 10 % TOTAL INTEREST EXPENSE 364 279 1,112 976 OTHER NON-OPERATING INCOME, NET 10 169 395 429 EARNINGS BEFORE INCOME TAXES 3,757 3,536 6 % 12,526 11,502 9 % INCOME TAXES 1,047 1,024 3,467 3,430
NET EARNINGS 2,710 2,512 8 % 9,059 8,072 12 %
EFFECTIVE TAX RATE 27.9 % 29.0 % 27.7 % 29.8 %
PER COMMON SHARE: BASIC NET EARNINGS $0.87 $0.78 12 % $2.89 $2.51 15 % DILUTED NET EARNINGS $0.82 $0.74 11 % $2.72 $2.37 15 % DIVIDENDS $0.35 $0.31 13 % $1.05 $0.93 13 % AVERAGE DILUTED SHARES OUTSTANDING 3,301.2 3,397.3 3,332.5 3,405.7
COMPARISONS AS A % OF NET Basis Basis SALES Pt Chg Pt Chg COST OF PRODUCTS SOLD 48.7 % 48.4 % 30 48.0 % 47.6 % 40 GROSS MARGIN 51.3 % 51.6 % (30) 52.0 % 52.4 % (40) SELLING, GENERAL & ADMINISTRATIVE EXPENSE 31.2 % 32.0 % (80) 30.7 % 31.4 % (70) OPERATING MARGIN 20.1 % 19.5 % 60 21.3 % 21.1 % 20 EARNINGS BEFORE INCOME TAXES 18.4 % 18.9 % (50) 20.1 % 20.1 % - NET EARNINGS 13.2 % 13.4 % (20) 14.6 % 14.1 % 50
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES (Amounts in Millions) Consolidated Cash Flows Information
Nine Months Ended March 31 2008 2007
BEGINNING CASH 5,354 6,693
OPERATING ACTIVITIES NET EARNINGS 9,059 8,072 DEPRECIATION AND AMORTIZATION 2,270 2,367 SHARE BASED COMPENSATION EXPENSE 396 482 DEFERRED INCOME TAXES 1,065 306 CHANGES IN: ACCOUNTS RECEIVABLE 253 (866) INVENTORIES (1,077) (636) ACCOUNTS PAYABLE, ACCRUED AND OTHER LIABILITIES (410) (233) OTHER OPERATING ASSETS & LIABILITIES (385) 38 OTHER 547 323
TOTAL OPERATING ACTIVITIES 11,718 9,853
INVESTING ACTIVITIES CAPITAL EXPENDITURES (1,852) (1,996) PROCEEDS FROM ASSET SALES 759 257 ACQUISITIONS, NET OF CASH ACQUIRED 36 (167) CHANGE IN INVESTMENT SECURITIES (188) 725
TOTAL INVESTMENT ACTIVITIES (1,245) (1,181)
FINANCING ACTIVITIES DIVIDENDS TO SHAREHOLDERS (3,385) (3,069) CHANGE IN SHORT-TERM DEBT 1,216 9,074 ADDITIONS TO LONG TERM DEBT 6,534 1,403 REDUCTION OF LONG TERM DEBT (10,227) (16,088) IMPACT OF STOCK OPTIONS AND OTHER 1,436 1,213 TREASURY PURCHASES (8,035) (4,061)
TOTAL FINANCING ACTIVITIES (12,461) (11,528)
EXCHANGE EFFECT ON CASH 371 157
CHANGE IN CASH AND CASH EQUIVALENTS (1,617) (2,699)
ENDING CASH 3,737 3,994
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES (Amounts in Millions) Consolidated Balance Sheet Information
March 31, 2008 June 30, 2007
CASH AND CASH EQUIVALENTS $3,737 $5,354 INVESTMENTS SECURITIES 341 202 ACCOUNTS RECEIVABLE 6,934 6,629 TOTAL INVENTORIES 8,427 6,819 OTHER 6,303 5,027 TOTAL CURRENT ASSETS 25,742 24,031
NET PROPERTY, PLANT AND EQUIPMENT 20,334 19,540 NET GOODWILL AND OTHER INTANGIBLE ASSETS 93,950 90,178 OTHER NON-CURRENT ASSETS 5,379 4,265
TOTAL ASSETS $145,405 $138,014
ACCOUNTS PAYABLE $5,535 $5,710 ACCRUED AND OTHER LIABILITIES 11,757 9,586 TAXES PAYABLE 684 3,382 DEBT DUE WITHIN ONE YEAR 13,287 12,039 TOTAL CURRENT LIABILITIES 31,263 30,717
LONG-TERM DEBT 23,673 23,375 OTHER 20,880 17,162 TOTAL LIABILITIES 75,816 71,254
TOTAL SHAREHOLDERS' EQUITY 69,589 66,760
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $145,405 $138,014
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES (Amounts in Millions) Consolidated Earnings Information
Three Months Ended March 31, 2008 % % % Change Earnings Change Change Versus Before Versus Versus Net Year Income Year Net Year Sales Ago Taxes Ago Earnings Ago
Beauty $4,743 9% $784 -1% $589 -2% Grooming 1,977 13% 551 28% 403 30% Beauty GBU 6,720 10% 1,335 9% 992 9%
Health Care 3,651 11% 943 14% 617 15% Snacks, Coffee and Pet Care 1,207 11% 171 -10% 105 -9% Health and Well-Being GBU 4,858 11% 1,114 9% 722 11%
Fabric Care and Home Care 5,759 10% 1,165 10% 781 12% Baby Care and Family Care 3,531 8% 739 22% 471 23% Household Care GBU 9,290 9% 1,904 14% 1,252 16%
Total Business Segments 20,868 10% 4,353 12% 2,966 12% Corporate (405) N/A (596) N/A (256) N/A Total Company 20,463 9% 3,757 6% 2,710 8%
Nine Months Ended March 31, 2008 % % % Change Earnings Change Change Versus Before Versus Versus Net Year Income Year Net Year Sales Ago Taxes Ago Earnings Ago
Beauty $14,479 8% $2,788 5% $2,161 6% Grooming 6,153 11% 1,761 19% 1,283 19% Beauty GBU 20,632 9% 4,549 10% 3,444 10%
Health Care 10,982 9% 2,979 12% 1,980 11% Snacks, Coffee and Pet Care 3,632 7% 556 -2% 345 -2% Health and Well-Being GBU 14,614 9% 3,535 9% 2,325 9%
Fabric Care and Home Care 17,737 10% 3,827 9% 2,579 9% Baby Care and Family Care 10,325 9% 2,069 18% 1,319 19% Household Care GBU 28,062 10% 5,896 12% 3,898 12%
Total Business Segments 63,308 9% 13,980 11% 9,667 11% Corporate (1,071) N/A (1,454) N/A (608) N/A Total Company 62,237 9% 12,526 9% 9,059 12%
JANUARY - MARCH NET SALES INFORMATION (Percent Change vs. Year Ago) * Volume Volume With Without Acqui- Acqui- sitions/ sitions/ Net Divesti- Divesti- Foreign Mix/ Sales tures tures Exchange Price Other Growth Beauty GBU Beauty 3% 3% 6% 0% 0% 9% Grooming 6% 6% 7% 2% -2% 13%
Health and Well-Being GBU Health Care 6% 6% 6% 0% -1% 11% Snacks, Coffee and Pet Care 4% 4% 3% 5% -1% 11%
Household Care GBU Fabric Care and Home Care 6% 6% 5% 0% -1% 10% Baby Care and Family Care 1% 7% 5% 1% 1% 8%
Total Company 4% 5% 5% 1% -1% 9%
FISCAL YEAR 2007/2008 NET SALES INFORMATION (Percent Change vs. Year Ago) *
Volume Volume With Without Acqui- Acqui- sitions/ sitions/ Divesti- Divesti- Foreign Mix/ Total tures tures Exchange Price Other Impact Beauty GBU Beauty 3% 3% 5% 0% 0% 8% Grooming 6% 7% 7% 1% -3% 11%
Health and Well-Being GBU Health Care 5% 4% 5% 0% -1% 9% Snacks, Coffee and Pet Care 2% 2% 3% 2% 0% 7%
Household Care GBU Fabric Care and Home Care 7% 7% 5% 0% -2% 10% Baby Care and Family Care 4% 8% 5% 0% 0% 9%
Total Company 5% 6% 5% 0% -1% 9%
* These sales percentage changes are approximations based on quantitative formulas that are consistently applied.
SOURCE The Procter & Gamble Company
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