Press Release

P&G Delivers Double-Digit Currency-Neutral Core Earnings Per Share Growth in First Quarter Fiscal 2016; First Quarter Core EPS $0.98, Currency-Neutral Core EPS +12%; Core Operating Profit Margin up 270 basis points

Company Release - 10/23/2015 7:00 AM ET

CINCINNATI--(BUSINESS WIRE)-- The Procter & Gamble Company (NYSE:PG) reported first quarter fiscal year 2016 currency-neutral Core earnings per share growth of 12% versus the prior year. Core earnings per share were $0.98, a decrease of one percent. Diluted net earnings per share were $0.91, an increase of 32%. Net sales were $16.5 billion, a decrease of 12% versus the prior year due primarily to significant foreign exchange impacts. Organic sales decreased one percent. Core operating profit margin increased 270 basis points with improvement in gross margin and SG&A costs.

Operating cash flow was $3.5 billion for the quarter. Adjusted free cash flow productivity was 101%. The Company repurchased $0.5 billion of common stock and returned $1.9 billion of cash to shareholders as dividends.

“We delivered strong first quarter operating profit margin and free cash flow results,” said Chairman, President, and Chief Executive Officer A.G. Lafley. “Top-line results were soft, as expected, given significant foreign exchange impacts, our deliberate choices to exit unprofitable businesses and the early stage of the improvement plans we’re implementing in our largest categories and markets. We continue to make strong progress on productivity savings, which will fuel smart investments in top-line growth. We expect second quarter organic sales growth to be positive and to further strengthen in the back half as we invest to build awareness and trial of our consumer-preferred products and brands.”

July - September Quarter Discussion

Net sales in the first quarter of fiscal year 2016 were $16.5 billion, a 12% decrease, including a negative nine percentage point impact from foreign exchange and two percentage point impact from the Venezuela deconsolidation and minor brand divestitures. Organic sales declined one percent as a two percent pricing benefit and one percent positive mix were more than offset by a four percent reduction in organic shipment volume. Organic sales were flat in the Fabric Care and Home Care and Grooming segments, and declined low single digits in the remaining segments. All-in and organic volume declined five percent and four percent, respectively. Pricing increased sales by two percent with higher pricing in all five business segments.

July - September Net Sales Drivers*

  Volume  

Foreign
Exchange

  Price   Mix   Other**  

Net
Sales

     

Organic
Volume

 

Organic
Sales

Beauty (7)% (7)% 1% 1% —% (12)% (4)% (2)%
Grooming (3)% (13)% 5% (2)% (1)% (14)% (3)% —%
Health Care (6)% (9)% 2% 3% (1)% (11)% (6)% (1)%
Fabric Care and Home Care (3)% (9)% 1% 1% (1)% (11)% (2)% —%
Baby, Feminine and Family Care   (7)%   (8)%   2%   1%   —%   (12)%       (6)%   (3)%
Total P&G   (5)%   (9)%   2%   1%   (1)%   (12)%       (4)%   (1)%

*Net sales percentage changes are approximations based on quantitative formulas that are consistently applied.
**Other includes the sales mix impact of acquisitions/divestitures, Venezuela deconsolidation and rounding impacts necessary to reconcile volume to net sales.

  • Beauty segment organic sales decreased two percent as lower organic volume was partially offset by a positive one percent impact from both pricing and mix. Volume decreased in Skin and Personal Care due to competitive activity and portfolio SKU reductions, partially offset by growth from marketing and innovation on the super-premium SK-II brand. Hair Care volume declined due to competitive activity and price increases in the previous fiscal year.
  • Grooming segment organic sales were unchanged as higher pricing on Blades & Razors and growth on Braun from innovation and increased trade support was offset by negative geographic and product mix and lower volume in Blades & Razors due to competitive activity and previous fiscal year price increases.
  • Health Care segment organic sales decreased one percent as lower volume was partially offset by favorable geographic mix and increased pricing in both Oral Care and Personal Health Care. Volume declined in both businesses following strong base period innovation, primarily in oral care, and due to competitive activity and increased pricing.
  • Fabric Care and Home Care segment organic sales were unchanged versus year ago as pricing and mix benefits offset lower volume. Organic sales in Home Care were in line with last year as pricing and mix benefits from innovation were offset by lower volume due to competitive activity. Fabric Care organic sales were flat as product mix benefits were offset by lower volume mainly due to de-prioritizing less profitable brands and products and increased competitive activity.
  • Baby, Feminine and Family Care segment organic sales declined three percent versus year ago as pricing benefits in Baby Care and Feminine Care along with mix benefits in Baby Care and Family Care were more than offset by lower volume in each of the three businesses. Baby Care volume declined due to competitive activity and increased pricing. Feminine Care volume declined due to price increases in the previous fiscal year. Family Care volume decreased due to exiting under-performing product lines in Mexico.

Core earnings per share were $0.98, a decrease of one percent versus the prior year. Excluding the impact of foreign exchange, currency-neutral Core earnings per share increased 12% for the quarter. Diluted net earnings per share from continuing operations increased three percent to $0.96. Diluted net earnings per share were $0.91, an increase of 32% versus the prior year, primarily driven by higher base period non-cash impairment charges related to the batteries business in discontinued operations.

Reported operating profit margin increased 340 basis points and Core operating profit margin was up 270 basis points versus the prior year, including 260 basis points of productivity cost savings and 50 basis points of foreign exchange impacts. On a currency-neutral basis, Core operating profit margin increased 320 basis points.

Reported gross margin increased 260 basis points. Core gross margin improved 250 basis points, including 60 basis points of negative foreign exchange impacts. On a currency-neutral basis, Core gross margin increased 310 basis points including 170 basis points of productivity cost savings

Selling, general and administrative expense (SG&A) decreased 90 basis points on a reported basis versus the prior year, including a 70 basis point net benefit due to a Venezuela balance sheet remeasurement charge in the base period. Core SG&A as a percentage of sales decreased 20 basis points, including a 10 basis point benefit from foreign exchange impacts. On a currency-neutral basis, Core SG&A decreased 10 basis points versus the prior year driven by 90 basis points of productivity savings from overhead and marketing costs, partially offset by 80 basis points of organization capability investments and lower sales.

Fiscal Year 2016 Guidance

P&G announced the planned exit of several Beauty categories on July 9, 2015. P&G clarified that its guidance for fiscal year 2016 Core EPS is relative to fiscal 2015 results, revised for the impacts of moving earnings from the Beauty categories it plans to exit to discontinued operations. Fiscal year 2015 Core EPS, which is based on earnings from continuing operations, have been revised from the $4.02 level originally reported to $3.76 per share as a result of this change. P&G referred readers to the informational 8-K furnished on September 8, 2015 which provides more details of the impacts to its financial results due to this change.

P&G maintained its outlook for organic sales of in-line to up low single digits versus fiscal 2015. Foreign exchange is now expected to be a five to six percentage point headwind on all-in sales growth. Additionally, P&G said it expects a two to three point reduction in sales from the combination of minor brand divestitures and the deconsolidation of results of its Venezuelan subsidiaries. As a result, the Company expects all-in sales to be down high single digits versus fiscal 2015 results.

The Company said increased volatility in market growth and foreign exchange rates have made earnings results more difficult to forecast. P&G maintained its guidance for Core earnings per share of slightly below to up mid-single digits versus fiscal 2015 restated Core EPS of $3.76. P&G said it continues to expect strong Core operating profit growth for the fiscal year and will not cut smart investments to offset foreign exchange impacts.

Including the impacts of non-Core restructuring costs and discontinued operations, P&G continues to expect all-in GAAP EPS to be up 53% to 63% versus fiscal year 2015 all-in GAAP EPS of $2.44.

Forward-Looking Statements

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise.

Risks and uncertainties to which our forward-looking statements are subject include, without limitation: (1) the ability to successfully manage global financial risks, including foreign currency fluctuations, currency exchange or pricing controls and localized volatility; (2) the ability to successfully manage local, regional or global economic volatility, including disruptions in credit markets, reduced market growth rates or changes affecting our credit rating, and generate sufficient income and cash flow to allow the Company to effect the expected share repurchases and dividend payments; (3) the ability to maintain key manufacturing and supply arrangements (including sole supplier and sole manufacturing plant arrangements) and manage disruption of business due to factors outside of our control, such as natural disasters and acts of war or terrorism; (4) the ability to successfully manage cost fluctuations and pressures, including commodity prices, raw materials, labor costs, energy costs and pension and health care costs, and achieve cost savings described in our announced productivity plan; (5) the ability to stay on the leading edge of innovation, obtain necessary intellectual property protections and successfully respond to technological advances attained by, and patents granted to, competitors; (6) the ability to compete with our local and global competitors in new and existing sales channels by successfully responding to competitive factors, including prices, promotional incentives and trade terms for products; (7) the ability to manage and maintain key customer relationships; (8) the ability to protect our reputation and brand equity by successfully managing real or perceived issues, including concerns about safety, quality, efficacy or similar matters that may arise; (9) the ability to successfully manage the financial, legal, reputational and operational risk associated with third party relationships, such as our suppliers, contractors and external business partners; (10) the ability to rely on and maintain key information technology systems and networks (including Company and third-party systems and networks) and maintain the security and functionality of such systems and networks and the data contained therein; (11) the ability to successfully manage regulatory and legal requirements and matters (including, without limitation, those laws and regulations involving product liability, intellectual property, antitrust, privacy, accounting standards and environmental) and to resolve pending matters within current estimates; (12) the ability to manage changes in applicable tax laws and regulations; (13) the ability to successfully manage our portfolio optimization strategy, as well as ongoing acquisition, divestiture and joint venture activities, to achieve the Company’s overall business strategy, without impacting the delivery of base business objectives; and (14) the ability to successfully achieve productivity improvements and manage ongoing organizational changes, while successfully identifying, developing and retaining particularly key employees, especially in key growth markets where the availability of skilled or experienced employees may be limited. 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 consumers around the world with one of the strongest portfolios of trusted, quality, leadership brands, including Always®, Ambi Pur®, Ariel®, Bounty®, Charmin®, Crest®, Dawn®, Downy®, Fairy®, Febreze®, Gain®, Gillette®, Head & Shoulders®, Lenor®, Olay®, Oral-B®, Pampers®, Pantene®, SK-II®, Tide®, Vicks®, and Whisper®. The P&G community includes operations in approximately 70 countries worldwide. Please visit http://www.pg.com for the latest news and information about P&G and its brands.

 
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per Share Amounts)
Consolidated Earnings Information
   
Three Months Ended September 30
2015   2014   % Chg
NET SALES $ 16,527 $ 18,771 (12 )%
COST OF PRODUCTS SOLD 8,152   9,734   (16 )%
GROSS PROFIT 8,375 9,037 (7 )%
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 4,607 5,404 (15 )%
OPERATING INCOME 3,768 3,633 4 %
INTEREST EXPENSE 140 170 (18 )%
INTEREST INCOME 44 31 42 %
OTHER NON-OPERATING INCOME/(LOSS), NET (18 ) 13   N/A
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 3,654 3,507 4 %
INCOME TAXES ON CONTINUING OPERATIONS 877   791   11 %
NET EARNINGS FROM CONTINUING OPERATIONS 2,777   2,716   2 %
NET EARNINGS/(LOSS) FROM DISCONTINUED OPERATIONS (142 ) (696 ) N/A
NET EARNINGS 2,635 2,020 30 %
LESS: NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTERESTS 34   30   13 %
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE $ 2,601   $ 1,990   31 %
 
EFFECTIVE TAX RATE 24.0 % 22.6 %
 
BASIC NET EARNINGS PER COMMON SHARE*:
EARNINGS FROM CONTINUING OPERATIONS $ 0.98 $ 0.97 1 %
EARNINGS/(LOSS) FROM DISCONTINUED OPERATIONS $ (0.05 ) $ (0.26 ) N/A
BASIC NET EARNINGS PER COMMON SHARE $ 0.93 $ 0.71 31 %
DILUTED NET EARNINGS PER COMMON SHARE*:
EARNINGS FROM CONTINUING OPERATIONS $ 0.96 $ 0.93 3 %
EARNINGS/(LOSS) FROM DISCONTINUED OPERATIONS $ (0.05 ) $ (0.24 ) N/A
DILUTED NET EARNINGS PER COMMON SHARE $ 0.91 $ 0.69 32 %
DIVIDENDS PER COMMON SHARE $ 0.663 $ 0.644
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,867.5 2,888.0
 
COMPARISONS AS A % OF NET SALES

Basis Pt
Change

GROSS MARGIN 50.7% 48.1% 260
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 27.9% 28.8% (90)
OPERATING MARGIN 22.8% 19.4% 340
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 22.1% 18.7% 340
NET EARNINGS FROM CONTINUING OPERATIONS 16.8% 14.5% 230
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE 15.7% 10.6% 510

* Basic net earnings per common share and diluted net earnings per common share are calculated on net earnings attributable to Procter & Gamble.

 
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

(Amounts in Millions)

Consolidated Earnings Information
   
Three Months Ended September 30, 2015
    Earnings/(Loss)      
from Continuing Net
% Change Operations % Change Earnings/(Loss) % Change
Versus Before Income Versus from Continuing Versus
Net Sales   Year Ago   Taxes   Year Ago   Operations   Year Ago
Beauty $ 3,041 (12 )% $ 822 (3 )% $ 624 (2

)%

Grooming 1,674 (14 )% 499 (20 )% 390 (16

)%

Health Care 1,796 (11 )% 448 (2 )% 318 (1

)%

Fabric Care and Home Care 5,251 (11 )% 1,120 4 % 747 4

%

Baby, Feminine and Family Care 4,658 (12 )% 1,111 (8 )% 749 (9

)%

Corporate 107     (12 )%   (346 )  

N/A  

  (51 )  

   N/A  

Total Company $ 16,527     (12 )%   $ 3,654     4 %   $ 2,777     2 %
 
Three Months Ended September 30, 2015
(Percent Change vs. Year Ago)*
  Volume        
Volume with Excluding
Acquisitions Acquisitions
& & Foreign Net Sales
Divestitures   Divestitures   Exchange     Price   Mix   Other**     Growth
Beauty (7)% (4)% (7)% 1% 1% —% (12)%
Grooming (3)% (3)% (13)% 5% (2)% (1)% (14)%
Health Care (6)% (6)% (9)% 2% 3% (1)% (11)%
Fabric Care and Home Care (3)% (2)% (9)% 1% 1% (1)% (11)%
Baby, Feminine and Family Care (7)%   (6)%   (8)%     2%   1%   —%     (12)%
Total Company (5)%   (4)%   (9)%     2%   1%   (1)%     (12)%

* Sales percentage changes are approximations based on quantitative formulas that are consistently applied.
** Other includes the sales mix impact of acquisitions/divestitures and rounding impacts necessary to reconcile volume to net sales.

 
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

(Amounts in Millions Except Per Share Amounts)

Consolidated Statement of Cash Flows
   
Three Months Ended
September 30
2015   2014
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 6,836 $ 8,558
OPERATING ACTIVITIES
NET EARNINGS 2,635 2,020
DEPRECIATION AND AMORTIZATION 731 794
SHARE BASED COMPENSATION EXPENSE 67 81
DEFERRED INCOME TAXES 89 (15 )
GAIN ON SALE OF BUSINESSES (7 ) (234 )
GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSET IMPAIRMENT CHARGES 402 973
CHANGES IN:
ACCOUNTS RECEIVABLE (368 ) (101 )
INVENTORIES (519 ) (568 )
ACCOUNTS PAYABLE, ACCRUED AND OTHER LIABILITIES 298 812
OTHER OPERATING ASSETS & LIABILITIES 141 (316 )
OTHER 69   187  
TOTAL OPERATING ACTIVITIES 3,538   3,633  
INVESTING ACTIVITIES
CAPITAL EXPENDITURES (532 ) (810 )
PROCEEDS FROM ASSET SALES 38 2,948
ACQUISITIONS, NET OF CASH ACQUIRED (15 )
PURCHASES OF AVAILABLE-FOR-SALE INVESTMENT SECURITIES (494 ) (1,342 )
PROCEEDS FROM SALES OF AVAILABLE-FOR-SALE INVESTMENT SECURITIES 418 101
CHANGE IN OTHER INVESTMENTS 24   (440 )
TOTAL INVESTING ACTIVITIES (546 ) 442  
FINANCING ACTIVITIES
DIVIDENDS TO SHAREHOLDERS (1,865 ) (1,806 )
CHANGE IN SHORT-TERM DEBT 450 105
REDUCTION OF LONG-TERM DEBT (537 ) (1,902 )
TREASURY STOCK PURCHASES (502 ) (2,378 )
IMPACT OF STOCK OPTIONS AND OTHER 483   966  
TOTAL FINANCING ACTIVITIES (1,971 ) (5,015 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (152 ) (132 )
CHANGE IN CASH AND CASH EQUIVALENTS 869   (1,072 )
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,705   $ 7,486  
 
 
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

(Amounts in Millions Except Per Share Amounts)

Condensed Consolidated Balance Sheet
       
September 30, 2015 June 30, 2015
CASH AND CASH EQUIVALENTS $ 7,705 $ 6,836
AVAILABLE-FOR-SALE INVESTMENTS SECURITIES 4,901 4,767
ACCOUNTS RECEIVABLE, NET 4,724 4,568
INVENTORIES 5,239 4,979
ASSETS HELD FOR SALE 9,360 4,432
OTHER 3,691 4,064
TOTAL CURRENT ASSETS 35,620 29,646
PROPERTY, PLANT AND EQUIPMENT, NET 19,081 19,655
GOODWILL AND OTHER INTANGIBLE ASSETS, NET 69,327 69,632
OTHER NON-CURRENT ASSETS 5,237 10,562
TOTAL ASSETS $ 129,265 $ 129,495
ACCOUNTS PAYABLE $ 7,758 $ 8,138
ACCRUED EXPENSES AND OTHER LIABILITIES 8,494 8,091
LIABILITIES HELD FOR SALE 2,222 1,543
DEBT DUE WITHIN ONE YEAR 13,093 12,018
TOTAL CURRENT LIABILITIES 31,567 29,790
LONG-TERM DEBT 17,394 18,327
OTHER 17,350 18,328
TOTAL LIABILITIES 66,311 66,445
TOTAL SHAREHOLDERS' EQUITY 62,954 63,050
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 129,265 $ 129,495
 

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.

The following tables provide selected non-GAAP financial information revised for the impact of accounting for the affected Beauty Brands as discontinued operations. In accordance with the SEC's Regulation G, definitions of the non-GAAP measures presented with the selected financial information are provided below and the reconciliation to the most closely related GAAP measure are provided within the following tables.

The Core earnings measures included in the following reconciliation tables refer to the equivalent GAAP measures adjusted as applicable for the following items:

  • charges for incremental restructuring due to increased focus on productivity and cost savings, and
  • charges for balance sheet impacts from the devaluation of the foreign currency exchange rate in Venezuela prior to deconsolidation.

We do not view these items to be part of our sustainable results. We believe that these Core measures provide an important perspective of underlying business trends and results and provide a more comparable measure of year-on-year results.

Core EPS and currency-neutral Core EPS: Core EPS is a measure of the Company's diluted net earnings per share from continuing operations adjusted as indicated. Core EPS is also one of the measures used to evaluate senior management and is a factor in determining their at-risk compensation.

Currency-neutral Core EPS is a measure of the Company's Core EPS excluding the incremental current year impact of foreign exchange. We believe the currency-neutral Core EPS measure provides a more comparable view of year-on-year earnings per share growth. The tables below provide a reconciliation of revised diluted net earnings per share to Core EPS and of Core EPS to currency-neutral Core EPS.

Core operating profit margin: This is a measure of the Company's operating margin adjusted for items as indicated.

Core gross margin: This is a measure of the Company's gross margin adjusted for items as indicated.

Core selling, general and administrative expense (SG&A) as a percentage of sales: This is a measure of the Company's SG&A as a percentage of sales adjusted for items as indicated.

Core tax rate: This is a measure of the Company's tax rate on continuing operations adjusted for items as indicated.

 
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per Share Amounts)
Selected Financial Information & Non-GAAP Measures
Three Months Ended September 30, 2015
  AS            
REPORTED DISCONTINUED INCREMENTAL NON-GAAP
(GAAP) OPERATIONS RESTRUCTURING ROUNDING (CORE*)
NET SALES 16,527 16,527
COST OF PRODUCTS SOLD 8,152           (72 ) 8,080  
GROSS PROFIT 8,375 72 8,447
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 4,607             4,607  
OPERATING INCOME 3,768           72   3,840  
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAX 3,654 72 3,726
INCOME TAX ON CONTINUING OPERATIONS 877           14   1 892  
NET EARNINGS FROM CONTINUING OPERATIONS 2,777 58 (1 ) 2,834
NET EARNINGS/(LOSS) FROM DISCONTINUED OPERATIONS (142 ) 142
NET EARNINGS ATTRIBUTABLE TO NON-CONTROLLING INTEREST 34             34  
NET EARNINGS ATTRIBUTABLE TO P&G 2,601       142     58   (1 ) 2,800  
GROSS MARGIN 50.7 % % 0.4 % % 51.1 %
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE AS A % OF NET SALES 27.9 % % %

 

% 27.9 %
OPERATING PROFIT MARGIN 22.8 % % 0.4 % % 23.2 %
EFFECTIVE TAX RATE 24.0 % % (0.1 )% % 23.9 %
            Core EPS:
DILUTED NET EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS** 0.96           0.02           0.98  
CURRENCY IMPACT TO CORE EARNINGS 0.13
CURRENCY-NEUTRAL CORE EPS     1.11  
 
CHANGE VERSUS YEAR AGO        
CORE GROSS MARGIN   250   BPS
CORE SELLING GENERAL & ADMINISTRATIVE EXPENSE AS A % OF NET SALES (20 ) BPS
CORE OPERATING PROFIT MARGIN 270 BPS
CORE EFFECTIVE TAX RATE 140 BPS
CORE EPS (1 )%
CURRENCY-NEUTRAL CORE EPS 12 %
 

*Core excludes incremental restructuring charges.
**Diluted net earnings per common share from continuing operations are calculated on net earnings attributable to Procter & Gamble.

 
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per Share Amounts)
Selected Financial Information & Non-GAAP Measures
Three Months Ended September 30, 2014
  AS         VENEZUELA B/S      
REPORTED DISCONTINUED INCREMENTAL REMEASUREMENT NON-GAAP
(GAAP) OPERATIONS RESTRUCTURING & DEVALUATION ROUNDING (CORE*)
NET SALES 18,771 18,771
COST OF PRODUCTS SOLD 9,734           (91 )     9,643  
GROSS PROFIT 9,037 91 9,128
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 5,404           9     (138 ) 1 5,276  
OPERATING INCOME 3,633           82     138   (1 ) 3,852  
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAX 3,507 82 138 3,727
INCOME TAX ON CONTINUING OPERATIONS 791           15     34   840  
NET EARNINGS FROM CONTINUING OPERATIONS 2,716 67 104 2,887
NET EARNINGS/(LOSS) FROM DISCONTINUED OPERATIONS (696 ) 696
NET EARNINGS ATTRIBUTABLE TO NON-CONTROLLING INTEREST 30       (5 )         25  
NET EARNINGS ATTRIBUTABLE TO P&G 1,990       701     67     104   2,862  
GROSS MARGIN 48.1 % % 0.5 % % % 48.6 %
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE AS A % OF NET SALES 28.8 % % % (0.7 )% % 28.1 %
OPERATING PROFIT MARGIN 19.4 % % 0.4 % 0.7 % % 20.5 %
EFFECTIVE TAX RATE 22.6 % % (0.1 )% 0.1 % (0.1 )% 22.5 %
                        Core EPS:
DILUTED NET EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS** 0.93           0.02     0.04           0.99  
 

*Core excludes incremental restructuring charges and balance sheet remeasurement impact from Venezuela.
**Diluted net earnings per common share from continuing operations are calculated on net earnings attributable to Procter & Gamble.

Organic sales growth: Organic sales growth is a non-GAAP measure of sales growth excluding the impacts of the Venezuela deconsolidation, acquisitions, divestitures and foreign exchange from year-over-year comparisons. We believe 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 sales growth to organic sales is as follows:

    Foreign   Acquisition/   Organic
Three Months Ended Net Sales Exchange Divestiture Sales
September 30, 2015 Growth Impact Impact* Growth
Beauty (12)% 7% 3% (2)%
Grooming (14)% 13% 1% 0%
Health Care (11)% 9% 1% (1)%
Fabric Care and Home Care (11)% 9% 2% 0%
Baby, Feminine and Family Care   (12)%   8%   1%   (3)%
Total P&G   (12)%   9%   2%   (1)%
 
       
Foreign Exchange Acquisition/ Organic Sales
Total P&G Net Sales Growth Impact Divestiture Impact* Growth
FY 2016 (Estimate) Down high single digits (5)% to (6)% (2)% to (3)%

In-line to up low single digits

* Acquisition/Divestiture Impact also includes the Venezuela deconsolidation, the mix impacts of acquisitions and divestitures and rounding impacts necessary to reconcile net sales to organic sales.

Core EPS: Core EPS is defined earlier in this exhibit and the table below provides a reconciliation of diluted net earnings per share guidance to Core EPS guidance:

    Impact of Incremental  
Total P&G Diluted EPS Growth Non-Core Items* Core EPS Growth
FY 2016 (Estimate) 53 to 63% (48)% to (64)% Down slightly to up mid-single digits

* Includes change in discontinued operations (includes Batteries impairments) and the absence of significant one-time items (e.g. Venezuela charge).

Free cash flow: Free cash flow is defined as operating cash flow less capital spending. We view free cash flow as an important measure because it is one factor used in determining the amount of cash available for dividends and discretionary investment. The reconciliation of free cash flow is provided below (amounts in millions):

    Operating Cash Flow   Capital Spending   Free Cash Flow

Three Months Ended
September 30, 2015

  $3,538   $(532)   $3,006
     

Adjusted free cash flow productivity: Adjusted free cash flow productivity is defined as the ratio of free cash flow to net earnings excluding impairment charges on the batteries business. The Company's long-term target is to generate annual adjusted free cash flow at or above 90 percent of net earnings. Adjusted free cash flow productivity is also a measure used to evaluate senior management and is a factor in determining their at-risk compensation. The reconciliation of adjusted free cash flow productivity is provided below (dollar amounts in millions):

         
Net Earnings Adjusted
Free Cash Net Impairment Excl. Impairment Free Cash Flow
    Flow   Earnings   Charges   Charges   Productivity

Three Months Ended
September 30, 2015

  $3,006   $2,635   $350   $2,985   101%
 

P&G Media Contacts:
Damon Jones, 513-983-0190
Jennifer Corso, 513-983-2570
or
P&G Investor Relations Contact:
John Chevalier, 513-983-9974

Source: Procter & Gamble