The Procter & Gamble Co. (NYSE:PG) reported fiscal year 2014 core earnings per share of $4.22, an increase of 5 percent versus the prior year. Excluding the impact of foreign exchange, currency-neutral core earnings per share increased 14 percent. Diluted net earnings per share were $4.01, an increase of four percent. Organic sales grew three percent driven by three percent unit volume growth. Net sales were $83.1 billion, an increase of one percent versus the prior year, including a negative two percentage point impact from foreign exchange.
For the April–June 2014 quarter, core earnings per share were $0.95, an increase of 20 percent versus the prior year period. Excluding the impact of foreign exchange, currency-neutral core earnings per share increased 25 percent. Diluted net earnings per share were $0.89, an increase of 39 percent percent. Organic sales grew two percent, including a two percentage point benefit from pricing. Shipment volume was in-line with prior year levels. Net sales were $20.2 billion, a decrease of one percent versus the prior year period, including a negative two percentage point impact from foreign exchange and a modest negative impact from minor divestitures.
“P&G delivered top and bottom line commitments for the fiscal year,” said Chairman, President, and Chief Executive Officer A.G. Lafley. “We met our objectives in a very difficult operating environment, delivered strong constant currency earnings growth, and built on our strong track record of cash returns to shareholders. Still, we have more work to do to deliver the profitable sales growth and strong cash productivity we are capable of delivering. We will discuss our going-forward strategy and plans to further strengthen our results during our earnings call this morning.”
Fiscal year discussion
In fiscal year 2014 net sales increased one percent to $83.1 billion, including a negative two percentage point impact from foreign exchange. Organic sales grew three percent. Organic sales were at or above year ago levels in each reporting segment. Volume grew three percent. Pricing increased sales by one percent with higher pricing in three of five reporting segments. Unfavorable geographic and product mix decreased sales by one percent.
- Beauty segment organic sales were flat with gains from market growth and product and commercial innovation in Hair Care, Deodorants, and Personal Cleansing offset by sales decreases in Salon Professional and Skin Care from competitive activity and market contraction.
- Grooming segment organic sales increased three percent due to higher pricing and innovation on Blades & Razors and Appliances, which was partially offset by negative geographic and product mix from disproportionate growth in developing markets and disposables.
- Health Care segment organic sales increased two percent due to growth in Oral Care from innovation, geographic market expansion and market growth, and in Personal Health Care, where innovation and market expansion more than offset a lower cough and cold season.
- Fabric Care and Home Care segment organic sales increased four percent with growth across each business. Fabric Care was up behind new innovation and developing market growth. Home Care grew sales behind new innovation in developed and developing markets. Personal Power grew sales due to distribution expansion in developed regions and market growth in developing regions.
- Baby, Feminine and Family Care segment organic sales increased four percent. Baby Care sales were up behind global product innovation and market growth in the developing regions. Feminine Care sales grew due to developing market growth and product innovation. Family Care sales increased behind product innovation, partially offset by competitive activity.
Core earnings per share, which exclude non-core restructuring charges, charges for European legal matters and balance sheet devaluation charges resulting from foreign exchange policy changes in Venezuela, were $4.22, an increase of five percent versus the prior year. Excluding the impact of foreign exchange, currency-neutral core earnings per share increased 14 percent for the year. Diluted net earnings per share from continuing operations increased four percent to $3.98, and diluted net earnings per share were $4.01, an increase of four percent versus the prior year.
Operating profit margin increased 100 basis points primarily driven by a reduction in selling, general and administrative (SG&A) expense, partially offset by a lower gross margin. Gross margin decreased 100 basis points primarily driven by 150 basis points of unfavorable geographic and product mix, 90 basis points of unfavorable foreign exchange, and 50 basis points of negative commodity impacts which were partially offset by manufacturing savings of approximately 190 basis points. SG&A as a percentage of sales decreased 170 basis points driven by a combination of marketing efficiencies and overhead productivity savings.
Operating cash flow was $14.0 billion for the year. Free cash flow productivity was 86 percent. The Company repurchased $6.0 billion of common stock and returned $6.9 billion of cash to shareholders as dividends. P&G announced a seven percent increase to the quarterly dividend in April, making this the 58th consecutive year of dividend increases.
Fiscal year 2015 guidance
P&G expects organic sales growth in the low-to-mid single digit range in fiscal year 2015. Net sales growth is expected to be in the low single digit range, including a negative one point impact from foreign exchange.
Core earnings per share are forecast to grow in the range of mid-single digits for the fiscal year. All-in GAAP diluted net earnings per share are also expected to grow in the range of mid-single digits, including approximately $0.20 per share of non-core restructuring charges.
P&G noted that the quarterly profile of earnings will be heavily influenced by the variation of foreign exchange impacts from period-to-period. The Company expects the most significant negative impact from foreign exchange in the July-September 2014 quarter. At current spot rates, P&G expects foreign exchange to be roughly neutral to earnings growth in the second half of fiscal year 2015.