P&G reports Q4 results

P&G reports Q4 results

Company continued to deliver broad-based organic sales growth, with four of five business segments increasing versus the prior year.

The Procter & Gamble Co. (NYSE:PG) increased organic sales for the April-June quarter by 3 percent driven by price increases, partially offset by geographic mix. Net sales were $20.2 billion, a decrease of 1 percent versus the prior year period. Foreign exchange reduced net sales by 4 percent. The Company continued to deliver broad-based organic sales growth, with four of five business segments increasing versus the prior year.

Diluted net earnings per share from continuing operations were $0.74, including non-core charges of $0.08 per share. Core net earnings per share were $0.82, consistent with the prior year period and $0.03 per share above the top-end of the Company’s guidance range. Additionally, P&G completed the sale of the Snacks business in the quarter, resulting in a net gain of $0.48 per share.

“We enter fiscal 2013 with very strong developing market momentum, strengthened plans on our core developed market business, and with the benefit of a $10 billion cost savings program, which is well underway,” said Chairman, President and Chief Executive Officer, Bob McDonald. “Despite a difficult macro environment, we see significant opportunities for top- and bottom-line growth.”

Executive summary

  • Organic sales increased 3 percent for the quarter.
  • Organic sales growth was broad-based, with four of five business segments increasing organic sales.
  • Core operating profit increased 4 percent. Including non-core charges, operating profit decreased 4 percent.
  • Core net earnings per share were in line with the prior year period at $0.82. The benefits from cost savings and pricing were offset by the decrease in net sales and higher commodity costs.
  • Diluted net earnings per share were $1.24, an increase of 48 percent due to the gain on sale of the Snacks business, partially offset by non-core charges. The non-core items included incremental restructuring charges due to the productivity and cost savings plan.
  • Diluted net earnings per share from continuing operations were $0.74, a decrease of 10 percent due to non-core restructuring charges.
  • Operating cash flow was $4.0 billion for the quarter and free cash flow, which is operating cash flow less capital spending, was $2.7 billion. Adjusted free cash flow productivity was 142 percent of net earnings.

April - June quarter discussion
Net sales decreased 1 percent to $20.2 billion in the April – June quarter. Organic sales grew 3 percent. Volume was in line with the year ago period. Broad-based price increases across all segments and regions increased net sales by 4 percent. This represented the fourth consecutive quarter in which positive pricing contributed 4 percent or more to net sales growth. Unfavorable foreign exchange reduced net sales growth by four percent. Geographic mix reduced net sales by 1 percent.

Diluted net earnings per share from continuing operations were $0.74 per share, a decrease of 10 percent due to non-core incremental restructuring charges of $0.08 per share. Gross margin contracted 40 basis points due mainly to higher commodity costs, unfavorable geographic and product mix and restructuring charges, which were partially offset by positive pricing and cost savings. Selling, general and administrative expenses (SG&A) as a percentage of net sales decreased 10 basis points.

Core net earnings per share were $0.82, in line with the prior year period. Excluding non-core charges, core gross margin increased 10 basis points and SG&A as a percentage of net sales decreased 80 basis points. Core operating profit, which excludes non-core items, increased 4 percent.

Operating cash flow was $4.0 billion for the fourth quarter and free cash flow was $2.7 billion. The Company returned $1.6 billion of cash to shareholders as dividends. In April 2012, P&G increased its dividend for the 56th consecutive year, making P&G one of only six U.S. companies with this track record of dividend increases. P&G has paid a dividend for 122 consecutive years.

Fiscal year discussion
Net sales increased 3 percent to $83.7 billion for fiscal 2012 on unit volume that was in line with the prior year period. Organic sales grew 3 percent. Price increases across all segments improved net sales by 4 percent, partially offset by unfavorable geographic and product mix which reduced net sales by 1 percent.

Diluted net earnings per share were $3.66 per share, a decrease of 7 percent due to non-core items. The non-core items included impairment charges for goodwill and indefinite lived intangible assets of $0.51 per share, incremental restructuring charges of $0.20 per share and earnings from discontinued operations of $0.54 per share. Excluding non-core items, Core EPS was $3.85, a decrease of 1 percent versus the prior year. Gross margin contracted 160 basis points due mainly to higher commodity costs, unfavorable geographic and product mix and restructuring charges, which were partially offset by positive pricing and cost savings. Selling, general and administrative expenses (SG&A) as a percentage of net sales decreased 30 basis points due to productivity savings, sales leverage and reduced charges for European legal matters, partially offset by an increase in marketing spending and incremental restructuring charges.

Operating cash flow in fiscal 2012 was $13.3 billion. The Company returned $6.1 billion of cash to shareholders as dividends and repurchased $4 billion of P&G stock in fiscal 2012.

Business segment discussion
Beauty Care net sales decreased 4 percent to $4.8 billion. Organic sales grew 1 percent. Unit volume decreased 1 percent. Price increases added 4 percent to net sales growth. Mix reduced net sales by 3 percent due to disproportionate growth in developing regions and in product categories that have lower than segment average selling prices. Unfavorable foreign exchange reduced net sales by 4 percent. Volume in Hair Care was in line with the prior year period due to mid-single digit growth in developing regions driven by market growth, product innovations and distribution expansions in Asia. The growth in developing regions was offset by developed regions which decreased mid-single digits due to competitive pressure in North America and Western Europe. Volume in Beauty, which includes skin, cosmetics and personal care product categories, decreased mid-single digits due to market share softness in the United States and China. Volume in Prestige Products increased mid-single digits, driven by initiative activity across fragrances and SK-II. Net earnings were in line with the prior year period at $382 million as net earnings margin expansion offset the impact of reduced net sales. Net earnings margin increased due to a reduction in the effective tax rate partially offset by higher commodities and unfavorable geographic and product mix.

Grooming net sales decreased 6 percent to $2.0 billion. Unit volume and organic sales were in line with the prior year period. Price increases added 1 percent to net sales growth, while unfavorable product mix decreased net sales by 1 percent mainly due to disproportionate growth in developing markets. Foreign exchange reduced net sales by 6 percent. Shave Care volume was in line with the prior year period. Low single digit growth in developing regions behind market growth and product and commercial innovation was offset by a low single digit decrease in developed regions due to competitive activity and market contraction in Western Europe. Volume in Appliances increased mid-single digits with developed markets up double digits primarily due to product innovation and in-store programs. Grooming net earnings were in line with prior year at $406 million as an expansion in operating margin was offset by the decrease in net sales. Operating margin increased mainly due to gross margin expansion resulting from manufacturing cost savings and higher pricing.

Health Care net sales decreased 1 percent to $2.9 billion. Unit volume increased 1 percent with organic volume in line with the prior year period. Organic sales were up 3 percent. Pricing increased net sales by 4 percent. Unfavorable product mix decreased net sales by 1 percent. Foreign exchange reduced net sales by 5 percent. Oral Care volume decreased low single digits due to competitive activity in developed markets and pricing gaps in Greater China. Volume in Feminine Care grew low single digits due to market growth and product innovation in developing markets. Personal Health Care volume increased mid-single digits, with organic volume decreasing low single digits due to initiative activity in the base period and lower shipments of Metamucil in North America. Net earnings decreased 2 percent to $336 million due to gross margin contraction partially offset by a reduction in SG&A expenses. Gross margin decreased due to higher commodity costs and unfavorable mix, partially offset by higher pricing and manufacturing cost savings.

Fabric Care and Home Care net sales decreased 1 percent to $6.6 billion. Unit volume decreased 1 percent. Organic sales were up 3 percent. Pricing increased net sales by 5 percent. Mix reduced net sales by 1 percent due to unfavorable geographic mix. Foreign exchange reduced net sales by 4 percent. Fabric Care volume decreased low single digits as growth in developing regions, driven by product innovation and market growth, was more than offset by a decrease in developed regions due to consumer value issues following price increases taken in previous periods. Home Care volume increased low single digits driven by a double digit increase in developing markets behind innovation and distribution expansion and a low single digit increase in developed markets due to Air Care innovation. Pet Care volume decreased high single digits. Batteries volume decreased low single digits due to distribution losses in developed regions, partially offset by growth in developing regions from promotional and initiative activity. Net earnings increased 10 percent to $635 million, due to operating margin expansion partially offset by the decrease in net sales. Operating margin expanded behind lower SG&A expenses and higher gross margin, as higher pricing and manufacturing cost savings more than offset increased commodity costs.

Baby Care and Family Care net sales increased 1 percent to $4.1 billion on unit volume growth of 1 percent. Organic sales increased 5 percent. Pricing increased net sales by 4 percent. Foreign exchange reduced net sales by 4 percent. Baby Care volume increased mid-single digits behind double digit growth in developing markets driven by market size growth, product innovation and distribution expansion, and by single digit growth in developed markets due to promotional activity. Volume in Family Care decreased high single digits primarily behind a strong base year period from volume pull forward ahead of price increases. Net earnings increased 13 percent to $540 million primarily due to operating margin expansion. Operating margin increased driven by a higher gross margin. Gross margin increased as price increases and manufacturing cost savings were partially offset by higher commodity costs.

Snacks divestiture
The Company divested the Snacks business to The Kellogg Company during the April – June quarter. The transaction resulted in a net after tax gain of $0.48 per share, including $0.02 per share of restructuring costs to eliminate stranded overhead costs.

Fiscal year 2013 guidance
Net sales for fiscal 2013 are expected to be in line to down 2 percent versus the prior year, including a negative 4 percent impact from foreign exchange. Organic sales are expected to increase 2 to 4 percent. Pricing is expected to add two percent to sales, and unfavorable product and geographic mix is expected to reduce sales by 1 percent. Diluted net earnings per share are expected to be in the range of $3.61 to $3.85. Core EPS is expected to be in the range of $3.80 to $4.00, consistent with the preliminary outlook provided by the Company. Core EPS estimates exclude non-core restructuring charges of $0.15 to $0.19.

The Company said it will repurchase $4 billion in P&G stock over the course of the fiscal year.

July – September 2012 quarter guidance
For the July – September quarter, net sales growth is estimated to be down 6 to down 4 percent versus the prior year period, including a 6 percent negative impact from foreign exchange. Organic sales are expected to be in-line to up 2 percent. Pricing is expected to add 3 percent to sales growth. Diluted net earnings per share are expected to be in the range of $0.83 to $0.91 which includes non-core restructuring charges of $0.06 to $0.08 per share. Core EPS is expected to be in the range of $0.91 to $0.97 versus a base period Core EPS of $1.01. A major driver of the lower first quarter EPS outlook is foreign exchange, which is forecast to reduce net earnings by 5 to 6 percent versus the prior year.

 

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