Procter & Gamble's fiscal Q3 earnings fall 16% from a year ago to US$2.4B as sales advance 2% to US$20.2B; cost savings plan affected results
April 27, 2012
– The Procter & Gamble Company (NYSE:PG) announced it maintained top-line growth momentum in its fiscal third quarter and grew core operating profit in a difficult economic and competitive environment. The Company stated it expects to accelerate organic sales growth, while further improving core operating profit growth in the fourth quarter.
P&G delivered two percent sales growth to $20.2 billion for the January – March quarter. Organic sales increased three percent driven by price increases, partially offset by geographic and product mix. The Company continued to deliver broad-based organic sales growth, with all five business segments up versus the prior year for the third consecutive quarter. Diluted net earnings per share from continuing operations were $0.81, reflecting non-core charges of $0.13 per share. Core net earnings per share were $0.94.
“We delivered broad-based organic sales growth, with all of our business segments growing, in a difficult macroeconomic and competitive environment,” said Chairman of the Board, President and Chief Executive Officer Bob McDonald. “We are making good progress against our productivity and cost savings program and improving core operating profit growth as we continue to execute our innovation and portfolio expansion plans. Looking ahead, we expect further acceleration in core operating profit growth in the fourth quarter driven by top-line growth, more favorable cost comparisons and productivity improvements.”
Net sales increased two percent to $20.2 billion in the January – March quarter. Organic sales grew three percent. Volume was in line with the year ago period. Broad-based price increases across all segments and geographies, increased net sales by five percent. This represented the third consecutive quarter in which positive pricing contributed four percent or more to net sales growth. Unfavorable foreign exchange reduced net sales growth by one percent. Geographic and product mix reduced net sales by two percent.
Diluted net earnings per share from continuing operations were $0.81 per share, a decrease of 14 percent due to non-core charges of $0.13 per share, which includes incremental restructuring charges of $0.12 per share. Gross margin contracted 150 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 increased 70 basis points due to non-core charges, partially offset by net sales leverage, productivity savings and a reduction in marketing spending. Excluding non-core items, core operating profit increased two percent. Core net earnings per share were $0.94, in line with the prior year period.
Operating cash flow was $3.8 billion for the quarter and free cash flow was $2.9 billion. The Company repurchased $2.3 billion of shares during the quarter and returned $1.5 billion of cash to shareholders as dividends.
As announced in February 2012, the Company is executing a productivity and cost savings plan to reduce spending across all areas. As part of this plan, the Company expects to incur approximately $3.5 billion before-tax in restructuring costs over a four-year period.
In the January – March quarter the Company had non-core charges of $0.13 per share primarily driven by the productivity and cost savings plan. The incremental costs totaled $452 million and were related to organizational changes, facility rationalization and employee separation charges.
The Company announced the addition of two brands, SK-II and Vicks, to the elite group of billion-dollar brands, which represents brands with annual net sales of at least one billion dollars. This increases the Company’s billion dollar brands from 24 to 26. Both brands have reached the billion-dollar brand status through sustained product innovation and geographic expansion, with SK-II becoming the first Asian “homegrown” billion dollar brand.
Business Segment Discussion
In February 2012 the Company announced an agreement to divest the Snacks business to The Kellogg Company. The transaction is expected to close by the end of the current fiscal year, subject to necessary regulatory approvals, with an expected gain of $0.47 to $0.50 per share.
Fiscal Year 2012 Guidance
Net sales are expected to increase four percent in fiscal 2012. Organic sales are expected to increase four percent. Foreign exchange is expected to be neutral to net sales for the year. Pricing is expected to add four percent to sales while unfavorable product and geographic mix is expected to reduce sales by one percent. Diluted net earnings per share is expected to be in the range of $3.63 to $3.74, which includes a gain of $0.47 to $0.50 on the sale of the Snacks business. Core EPS is expected to be in the range of $3.82 to $3.88, down one percent to in line versus a base period Core EPS of $3.87.
April – June 2012 Quarter Guidance
For the April – June quarter, net sales growth is estimated to be up one to two percent. Organic sales are expected to grow four to five percent, with continued benefit from pricing. Foreign exchange is expected to reduce net sales by three percent. Diluted net earnings per share are expected to be in the range of $1.21 to $1.32, which includes a gain of $0.47 to $0.50 on the sale of the Snacks business. Core EPS is expected to be in the range of $0.79 to $0.85, down four percent to up four percent versus a base period Core EPS of $0.82. Fourth quarter net earnings will continue to be negatively affected by higher commodity costs versus prior year levels, though to a smaller degree than in recent quarters. In addition, the effective tax rate will be significantly higher than in the comparison period, which will reduce Core EPS growth by approximately six percentage points.
All statements, other than statements of historical fact included in this release or presentation, 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 or presentation, there are certain factors that could cause actual results for any quarter or annual period to differ materially from those anticipated by some of the statements made. These include: (1) the ability to achieve business plans, including growing existing sales and volume profitably despite high levels of competitive activity and an increasingly volatile economic environment, 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 manage ongoing acquisition, divestiture and joint venture activities to achieve the cost and growth synergies in accordance with the stated goals of these transactions without impacting the delivery of base business objectives; (3) the ability to successfully manage ongoing organizational changes and achieve productivity improvements designed to support our growth strategies, while successfully identifying, developing and retaining key employees, especially in key growth markets where the availability of skilled employees is limited; (4) the ability to manage and maintain key customer relationships; (5) the ability to maintain key manufacturing and supply sources (including sole supplier and plant manufacturing sources); (6) the ability to successfully manage regulatory, tax and legal requirements and matters (including product liability, patent, intellectual property, and tax policy), and to resolve pending matters within current estimates; (7) the ability to resolve the pending competition law inquiries in Europe within current estimates; (8) the ability to successfully implement, achieve and sustain cost improvement plans and efficiencies in manufacturing and overhead areas, including the Company's outsourcing projects; (9) the ability to successfully manage currency (including currency issues in certain countries, such as Venezuela, China and India), debt, interest rate and commodity cost exposures and significant credit or liquidity issues; (10) the ability to manage continued global political and/or economic uncertainty and disruptions, especially in the Company's significant geographical markets, due to terrorist and other hostile activities or natural disasters and/or disruptions to credit markets resulting from a global, regional or national credit crisis; (11) the ability to successfully manage competitive factors, including prices, promotional incentives and trade terms for products; (12) the ability to obtain patents and respond to technological advances attained by competitors and patents granted to competitors; (13) the ability to successfully manage increases in the prices of raw materials used to make the Company's products; (14) the ability to develop effective sales, advertising and marketing programs; (15) the ability to stay on the leading edge of innovation, maintain a positive reputation on our brands and ensure trademark protection; and (16) the ability to rely on and maintain key information technology systems (including Company and third-party systems) and the security over such systems and the data contained therein. 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
P&G serves approximately 4.4 billion people around the world with its brands. The Company has one of the strongest portfolios of trusted, quality, leadership brands, including Pampers®, Tide®, Ariel®, Always®, Whisper®, Pantene®, Mach3®, Bounty®, Dawn®, Fairy®, Gain®, Pringles®, Charmin®, Downy®, Lenor®, Iams®, Crest®, Oral-B®, Duracell®, Olay®, Head & Shoulders®, Wella®, Gillette®, Braun®, Fusion®, Ace®, Febreze®, Ambi Pur®, SK-II®, and Vicks®. The P&G community includes operations in about 80 countries worldwide. Please visit http://www.pg.com for the latest news and in-depth information about P&G and its brands.
Industry Intelligence Editor's note: In an omitted table, the company reported net earnings of $2.411 billion for the three months ended March 31, 2012. For the three months ended March 31, 2011, the company reported net earnings of US$2.873 billion.