News Release
| P&G Reports 8% Net Sales and 22% EPS Growth in the Fourth Quarter |
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Announces $24 - $30 Billion Share Repurchase Program; Confirms Fiscal 2008 EPS Guidance CINCINNATI, Aug. 3 /PRNewswire-FirstCall/ -- The Procter & Gamble Company (NYSE: PG) announced net sales growth of eight percent for the April - June quarter to $19.3 billion and 12 percent growth for the fiscal year to $76.5 billion. Diluted net earnings per share increased 22 percent for the quarter to $0.67 behind sales growth and a 110-basis point operating margin improvement. For the fiscal year, diluted net earnings per share were up 15 percent to $3.04. The impact of Gillette dilution for the fiscal year was an estimated $0.10 - $0.12 per share, slightly better than the company's expectations primarily due to faster than expected cost synergies. Every segment grew organic sales for the year, led by high-single digit growth in Blades & Razors and Fabric & Home Care and mid-single digit growth in Beauty and Health Care. The company also announced a significant increase in its share repurchase plans. P&G now plans to repurchase $24 - $30 billion of company shares over the next three years at a rate of $8 - $10 billion per year. This represents a substantial increase versus the company's fiscal 2007 repurchase level of $5.6 billion. "This marks the sixth consecutive year in which P&G delivered topline growth at or above the company's targets," said Chairman of the Board and Chief Executive A.G. Lafley. "These results were achieved at the same time the organization was integrating Gillette, which is progressing ahead of plan. Our strong cash generation results and our confidence in the business outlook have enabled us to substantially increase our share repurchase commitment for the next three years. I am confident we have the right strategies and capabilities in place and are making the right investment choices to take full advantage of the significant growth opportunities ahead of us." Executive Summary
April - June Quarter Discussion Net sales for the quarter increased eight percent to $19.3 billion. Sales growth was led by double-digit increases in Blades & Razors, Fabric & Home Care and Health Care behind successful product initiatives including Gillette Fusion, Tide Simple Pleasures and Crest Pro-Health. Volume increased five percent behind broad-based geographic growth, led by double-digit growth in developing regions. Each segment delivered mid-single digit or higher year- on-year volume growth except Snacks, Coffee and Pet Care, which was impacted by the voluntary recall of certain wet pet foods in March. Foreign exchange contributed three percent to sales growth. Organic sales increased five percent for the quarter. Net earnings increased 19 percent for the quarter to $2.3 billion. Net earnings were up behind strong sales growth and a 110-basis point operating margin improvement. Diluted net earnings per share increased 22 percent to $0.67. Gross margin improved by 70-basis points to 50.8% during the quarter. Commodity and energy costs had a negative impact on gross margin of about 40- basis points. Scale leverage from volume growth and cost savings projects more than offset commodity cost increases, driving the year-on-year margin improvement. Selling, general and administrative expenses (SG&A) were down 40-basis points to 33.2% of net sales due to lower overhead spending as a percentage of net sales. Overhead spending improved due to volume scale leverage, Gillette- related cost synergies and overhead cost control. Operating cash flow was $3.6 billion during the quarter, an increase of 12 percent versus the base period. Operating cash was driven by strong earnings and an improvement in working capital behind lower inventory days on hand. Free cash flow, defined as operating cash flow less capital expenditures, was $2.6 billion during the quarter and 116% of net earnings. Capital expenditures were 4.9% of net sales during the quarter. Business Segment Discussion for the Quarter The following provides perspective on the company's April - June quarter results by business segment. Beauty and Health Care
Household Care
Gillette GBU
Fiscal Year Discussion Net sales in fiscal 2007 increased 12 percent to $76.5 billion. Sales were up behind nine percent volume growth, including the impact of an additional three months of Gillette in fiscal 2007. Growth was driven by initiative activity such as Gillette Fusion, Pantene brand restage, Olay Definity and Regenerist, Dolce & Gabbana "The One", Always Clean, Tide Simple Pleasures, Gain Joyful Expressions, Swiffer upgrade and Pampers Caterpillar Flex. Price increases added one percent to net sales and favorable foreign exchange contributed two percent. Organic sales were up five percent with each reportable segment delivering year-on-year growth. Net earnings grew 19 percent during the fiscal year to $10.3 billion. Net earnings increased behind sales growth and an 80-basis point improvement in operating margin. Diluted net earnings per share increased 15 percent to $3.04, including an estimated $0.10 - $0.12 dilution impact from Gillette. Gillette dilution was better than the company's expectations primarily due to faster than expected cost synergies. Gross margin improved 60-basis points to 52.0% during the fiscal year. Higher commodity costs hurt gross margin by over 60-basis points but were more than offset by scale leverage from strong organic volume growth, cost savings projects and Gillette cost synergies. The favorable mix impact of the additional three months of Gillette results in fiscal 2007 contributed approximately 30-basis points to gross margin. SG&A as a percent of sales improved 20-basis points in fiscal 2007 to 31.8% driven by lower overhead spending as a percentage of net sales. Overhead spending improved as volume scale leverage, Gillette-related cost synergies and overhead cost controls more than offset the impact of higher Gillette acquisition-related expenses. The company's operating cash flow for the fiscal year was $13.4 billion, an increase of 18 percent versus the prior year. Operating cash increased primarily behind higher earnings. Working capital increased during the year primarily to support business growth. Capital expenditures were 3.9% percent of net sales, in-line with the prior year and slightly better than the company's four percent target. Free cash flow was $10.5 billion for the year and free cash flow productivity was 101% during the year, well above the company's 90% target. Fiscal Year Business Segment Discussion Beauty and Health Care
Household Care
Gillette GBU Since Gillette was acquired on October 1, 2005, results for fiscal 2006 include only 9 months of results while fiscal 2007 results include 12 months of results. In order to provide a more meaningful year-on-year comparison, the following discussion compares the company's fiscal 2007 results versus pro forma fiscal year 2006 Gillette GBU results that are comprised of the company's reported October - June 2006 results combined with pro forma July - September 2005 results as presented in the company's Form 8-K released on November 22, 2005.
Fiscal Year 2008 and July - September Quarter Guidance For fiscal year 2008, the company expects organic sales to grow four to six percent, in-line with its long-term target range. The combination of pricing and product mix is expected to have a neutral to positive one percent impact on sales growth, and foreign exchange is expected to add approximately one to two percent. The net impact of acquisitions and divestitures is estimated to have a neutral to negative one percent impact on sales growth. Total sales are expected to increase five to seven percent. P&G said it expects earnings per share of $3.44 to $3.47 for the fiscal year, an increase of 13% to 14% versus the prior year. Operating margins are expected to increase by 70 to 100 basis points, and the company estimates its effective tax rate will be at or slightly above 29% for the fiscal year. For the July - September quarter, the company expects organic sales to grow four to six percent. The combination of pricing and product mix is expected to have a neutral to positive one percent impact on sales growth, and foreign exchange is expected to add two to three percent. The net impact of acquisitions and divestitures is estimated to have a neutral to negative one percent impact on sales growth. Total sales are expected to increase six to eight percent. P&G expects earnings per share of $0.88 to $0.90 for the quarter. Operating margins should improve modestly as improvement in SG&A costs as a percentage of sales will largely be offset by lower gross margins. Gross margins are expected to be temporarily lower due to commodity cost increases and investments needed to convert the North American liquid laundry detergent business to a compacted formula. The first of three expansion waves for the new detergents is planned for September 2007. As previously announced, the company integrated the Gillette GBU into existing P&G business units on July 1. As a result, the company will change its segment reporting structure beginning with its July - September 2007 results. Under the new structure, the Gillette GBU will be eliminated. Duracell results will be managed and reported within the Fabric and Home Care segment. Braun will be merged with Blades and Razors to create a new "Grooming" reportable segment. Additionally, the company will move Feminine Care from the Beauty segment to the Health Care segment and Shave Preps from the Beauty segment to the new Grooming segment. A summary of the new reporting segments, as well as the new Global Business Unit names and compositions, are summarized in the following table:
Global Business Units Reporting Segments
Beauty * Beauty
* Grooming
Health and Well Being * Health Care
* Snacks, Coffee and Pet Care
Household Care * Fabric Care and Home Care
* Baby Care and Family Care
The company will issue a Form 8-K before the next earnings release in order to provide historical quarterly results for the new segments. 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; and (13) the ability to stay on the leading edge of innovation and maintain a positive reputation on our brands. 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), 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 over 135,000 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. We believe this provides investors with a more complete understanding of underlying sales trends by providing sales growth on a consistent basis.
The reconciliation of reported sales growth to organic sales in the
April - June 2007 quarter:
Total P&G
Total Sales Growth 8%
Less: Foreign Exchange Impact -3%
Less: Acquisition/Divestiture Impact 0%
Organic Sales Growth 5%
The reconciliation of reported sales growth to organic sales in the 2007
fiscal year:
Total P&G Beauty Health Care
Total Sales Growth 12% 9% 14%
Less: Foreign Exchange Impact -2% -3% -2%
Less: Acquisition/Divestiture Impact -5% -1% -6%
Organic Sales Growth 5% 5% 6%
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 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. The reconciliation of free cash flow and free cash flow productivity is provided below ($ millions):
Operating Capital Free Cash Net Free Cash Flow
Cash Flow Spending Flow Earnings Productivity
Apr-Jun '07 $3,582 $(949) $2,633 $2,268 116%
Fiscal 2007 $13,435 $(2,945) $10,490 $10,340 101%
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions)
Consolidated Earnings Information
Three Months Ended June 30, 2007
%Change Earnings %Change %Change
Versus Before Versus Versus
Year Income Year Net Year
Net Sales Ago Taxes Ago Earnings Ago
BEAUTY $5,874 8% $1,150 8% $807 9%
HEALTH CARE 2,193 11% 376 17% 249 23%
BEAUTY AND HEALTH 8,067 9% 1,526 10% 1,056 12%
FABRIC CARE AND HOME CARE 4,799 10% 1,014 28% 681 30%
BABY CARE AND FAMILY CARE 3,240 5% 537 3% 334 3%
SNACKS, COFFEE AND PET CARE 1,131 2% 192 49% 124 61%
HOUSEHOLD CARE 9,170 7% 1,743 21% 1,139 23%
BLADES AND RAZORS 1,364 18% 392 15% 290 19%
DURACELL AND BRAUN 919 4% 96 19% 63 17%
GILLETTE GBU 2,283 12% 488 16% 353 18%
TOTAL BUSINESS SEGMENT 19,520 9% 3,757 16% 2,548 18%
CORPORATE (248) N/A (549) N/A (280) N/A
TOTAL COMPANY 19,272 8% 3,208 18% 2,268 19%
Twelve Months Ended June 30, 2007
%Change Earnings %Change %Change
Versus Before Versus Versus
Year Income Year Net Year
Net Sales Ago Taxes Ago Earnings Ago
BEAUTY $22,981 9% $4,794 10% $3,492 12%
HEALTH CARE 8,964 14% 2,148 23% 1,453 25%
BEAUTY AND HEALTH 31,945 10% 6,942 14% 4,945 16%
FABRIC CARE AND HOME CARE 18,971 11% 4,156 17% 2,793 18%
BABY CARE AND FAMILY CARE 12,726 6% 2,291 11% 1,440 11%
SNACKS, COFFEE AND PET CARE 4,537 4% 759 21% 477 24%
HOUSEHOLD CARE 36,234 8% 7,206 15% 4,710 16%
BLADES AND RAZORS 5,229 49% 1,664 55% 1,222 56%
DURACELL AND BRAUN 4,031 38% 588 47% 394 44%
GILLETTE GBU 9,260 44% 2,252 53% 1,616 53%
TOTAL BUSINESS SEGMENT 77,439 12% 16,400 19% 11,271 20%
CORPORATE (963) N/A (1,690) N/A (931) N/A
TOTAL COMPANY 76,476 12% 14,710 19% 10,340 19%
APRIL-JUNE NET SALES INFORMATION
(Percent Change vs. Year Ago) *
Volume Volume
With Without
Acquisi- Acquisi-
tions/ tions/ Net
Divest- Divest- Foreign Mix/ Sales
itures itures Exchange Price Other Growth
BEAUTY AND HEALTH
BEAUTY 4% 4% 3% -1% 2% 8%
HEALTH CARE 4% 4% 3% 2% 2% 11%
HOUSEHOLD CARE
FABRIC CARE AND
HOME CARE 8% 8% 3% 1% -2% 10%
BABY CARE AND
FAMILY CARE 6% 6% 3% -2% -2% 5%
SNACKS, COFFEE
AND PET CARE -2% -2% 2% 2% 0% 2%
GILLETTE GBU
BLADES AND RAZORS 6% 6% 5% 2% 5% 18%
DURACELL AND BRAUN 2% 4% 3% 2% -3% 4%
TOTAL COMPANY 5% 5% 3% 0% 0% 8%
FISCAL YEAR 2006/2007 NET SALES INFORMATION
(Percent Change vs. Year Ago) *
Volume Volume
With Without
Acquisi- Acquisi-
tions/ tions/ Net
Divest- Divest- Foreign Mix/ Sales
itures itures Exchange Price Other Growth
BEAUTY AND HEALTH
BEAUTY 5% 5% 3% 0% 1% 9%
HEALTH CARE 9% 4% 2% 2% 1% 14%
HOUSEHOLD CARE
FABRIC CARE AND
HOME CARE 8% 8% 3% 0% 0% 11%
BABY CARE AND
FAMILY CARE 5% 5% 2% 0% -1% 6%
SNACKS, COFFEE AND
PET CARE 0% 0% 2% 1% 1% 4%
GILLETTE GBU
BLADES AND RAZORS n/a n/a n/a n/a n/a n/a
DURACELL AND BRAUN n/a n/a n/a n/a n/a n/a
TOTAL COMPANY 9% 5% 2% 1% 0% 12%
* These sales percentage changes are approximations based on quantitative
formulas that are consistently applied.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per Share Amounts)
Consolidated Earnings Information
AMJ QUARTER FYTD
6/30/ 6/30/
AMJ 07 AMJ 06 %CHG 2007 2006 %CHG
NET SALES $19,272 $17,842 8% $76,476 $68,222 12%
COST OF PRODUCTS SOLD 9,477 8,894 7% 36,686 33,125 11%
GROSS MARGIN 9,795 8,948 9% 39,790 35,097 13%
SELLING, GENERAL &
ADMINISTRATIVE EXPENSE 6,395 5,999 7% 24,340 21,848 11%
OPERATING INCOME 3,400 2,949 15% 15,450 13,249 17%
TOTAL INTEREST EXPENSE 328 300 1,304 1,119
OTHER NON-OPERATING
INCOME, NET 136 62 564 283
EARNINGS BEFORE INCOME
TAXES 3,208 2,711 18% 14,710 12,413 19%
INCOME TAXES 940 813 4,370 3,729
NET EARNINGS 2,268 1,898 19% 10,340 8,684 19%
EFFECTIVE TAX RATE 29.3% 30.0% 29.7% 30.0%
PER COMMON SHARE:
BASIC NET EARNINGS $0.71 $0.58 22% $3.22 $2.79 15%
DILUTED NET EARNINGS $0.67 $0.55 22% $3.04 $2.64 15%
DIVIDENDS $0.35 $0.31 13% $1.28 $1.15 11%
AVERAGE DILUTED SHARES
OUTSTANDING 3,378.2 3,437.3 3,398.6 3,285.9
COMPARISONS AS A % OF NET Basis Basis
SALES Pt Chg Pt Chg
COST OF PRODUCTS SOLD 49.2% 49.8% (70) 48.0% 48.6% (60)
GROSS MARGIN 50.8% 50.2% 70 52.0% 51.4% 60
SELLING, GENERAL &
ADMINISTRATIVE EXPENSE 33.2% 33.6% (40) 31.8% 32.0% (20)
OPERATING MARGIN 17.6% 16.5% 110 20.2% 19.4% 80
EARNINGS BEFORE INCOME
TAXES 16.6% 15.2% 140 19.2% 18.2% 100
NET EARNINGS 11.8% 10.6% 120 13.5% 12.7% 80
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions)
Consolidated Cash Flows Information
Twelve Months Ended June 30
2007 2006
BEGINNING CASH 6,693 6,389
OPERATING ACTIVITIES
NET EARNINGS 10,340 8,684
DEPRECIATION AND AMORTIZATION 3,130 2,627
SHARED BASED COMPENSATION EXPENSE 668 585
DEFERRED INCOME TAXES 253 (112)
CHANGES IN:
ACCOUNTS RECEIVABLE (729) (524)
INVENTORIES (389) 383
ACCOUNTS PAYABLE, ACCRUED AND
OTHER LIABILITIES (273) 230
OTHER OPERATING ASSETS &
LIABILITIES (157) (508)
OTHER 592 10
TOTAL OPERATING ACTIVITIES 13,435 11,375
INVESTING ACTIVITIES
CAPITAL EXPENDITURES (2,945) (2,667)
PROCEEDS FROM ASSET SALES 281 882
ACQUISITIONS, NET OF CASH
ACQUIRED (492) 171
CHANGE IN INVESTMENT SECURITIES 673 884
TOTAL INVESTMENT ACTIVITIES (2,483) (730)
FINANCING ACTIVITIES
DIVIDENDS TO SHAREHOLDERS (4,209) (3,703)
CHANGE IN SHORT-TERM DEBT 8,981 (8,627)
ADDITIONS TO LONG TERM DEBT 4,758 22,545
REDUCTION OF LONG TERM DEBT (17,929) (5,282)
IMPACT OF STOCK OPTIONS AND OTHER 1,499 1,319
TREASURY PURCHASES (5,578) (16,830)
TOTAL FINANCING ACTIVITIES (12,478) (10,578)
EXCHANGE EFFECT ON CASH 187 237
CHANGE IN CASH AND CASH EQUIVALENTS (1,339) 304
ENDING CASH 5,354 6,693
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions)
Consolidated Balance Sheet Information
June 30, 2007 June 30, 2006
CASH AND CASH EQUIVALENTS $5,354 $6,693
INVESTMENTS SECURITIES $202 $1,133
ACCOUNTS RECEIVABLE 6,629 5,725
TOTAL INVENTORIES 6,819 6,291
OTHER 5,027 4,487
TOTAL CURRENT ASSETS 24,031 24,329
NET PROPERTY, PLANT AND EQUIPMENT 19,540 18,770
NET GOODWILL AND OTHER INTANGIBLE
ASSETS 90,178 89,027
OTHER NON-CURRENT ASSETS 4,265 3,569
TOTAL ASSETS $138,014 $135,695
ACCOUNTS PAYABLE $5,710 $4,910
ACCRUED AND OTHER LIABILITIES 9,585 9,587
TAXES PAYABLE 3,382 3,360
DEBT DUE WITHIN ONE YEAR 12,040 2,128
TOTAL CURRENT LIABILITIES 30,717 19,985
LONG-TERM DEBT 23,375 35,976
OTHER 17,162 16,826
TOTAL LIABILITIES 71,254 72,787
TOTAL SHAREHOLDERS' EQUITY 66,760 62,908
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $138,014 $135,695
SOURCE The Procter & Gamble Company
CONTACT: Media, Doug Shelton, +1-513-983-7893, Investor Relations, Chris Peterson, +1-513-983-2414, both of P&G 6527 08/03/2007 07:00 EDT http://www.prnewswire.com |
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