CINCINNATI , April 28, 2005 – The Procter & Gamble
Company (NYSE:PG) announced
sales and earnings growth above targets for the January –
March quarter. Sales increased 10 percent and earnings per
share increased 15 percent to $0.63, exceeding analysts’ consensus
estimate by two cents. Broad-based growth across the company’s
portfolio of leading brands drove these strong results, despite
a difficult cost and competitive environment affecting several
categories. The company raised fiscal year earnings per share
guidance range to $2.64 to $2.65.
Executive Summary
- Unit volume for the
quarter grew six percent.
Organic volume, which excludes
acquisitions and divestitures,
increased seven percent.
All business units posted
volume growth of mid-single
digits or greater, led
by mid-teens growth in
health care and developing
markets.
-
Net sales grew 10 percent
to $14.29 billion for the
quarter. Organic sales,
which exclude the impacts
of acquisitions, divestitures
and foreign exchange, increased
eight percent. This is
three percentage points
above the company’s organic
sales target growth range
of three to five percent.
- Diluted net earnings
per share increased
15 percent to $0.63.
“P&G’s innovation leadership is delivering strong results
across the company’s balanced portfolio of businesses and
geographies. This gives us confidence to increase the earnings
outlook for the year,” said Chairman of the Board, President
and Chief Executive A.G. Lafley. “We remain sharply focused
on keeping P&G’s businesses healthy, and growing, as we
continue the integration
planning process with Gillette.”
Quarterly Discussion
Unit volume
for the January – March quarter increased six percent. Organic
volume grew seven percent, which excludes the impact of acquisitions
and divestitures – primarily the divestiture of the juice
business. Growth continues to be broad-based with all global
business units delivering unit volume growth of mid-single
digits or greater. Additionally, unit volume increased in
all geographic regions led by developing market growth in
the mid-teens.
Net sales increased 10 percent to $14.29 billion. Organic
sales increased eight percent, which is above the company’s
long-term target of three to five percent. Organic sales exclude
the impacts of acquisitions, divestitures and foreign exchange
from year-over-year comparisons. Foreign exchange added three
percent to net sales growth behind strengthening of the euro,
British pound and Canadian dollar. Pricing added one percent
to sales growth primarily behind increases that partially
recovered commodity costs in the family care, coffee and pet
health and nutrition categories.
Net earnings increased 13 percent to $1.72 billion and d
iluted net earnings per share increased 15 percent to $0.63.
Earnings growth was primarily driven by volume. This was partially
offset by continued marketing investments in support of initiatives
such as Olay Quench®, the expansion of Olay® in Europe and
Asia, Pantene Color Expressions®, Pampers Feel ‘n Learn®,
Pampers Kandoo®, and Rejoice®.
The effective tax rate for the quarter was up 120 basis
points versus the prior year. This is due to a provision for
taxes on anticipated dividends from foreign subsidiaries,
which was largely offset by the successful resolution of tax
audits in certain countries. Also, the quarterly rate increased
for adjustments to the expected geographic mix of annual taxable
income.
Key Financial
Highlights
- Gross margin decreased
10 basis points versus
the prior year period.
The margin impacts of higher
commodity costs were partially
offset by the scale benefits
of volume growth, pricing
actions and cost reduction
programs. The gross margin
impact of a shift to higher
gross margin products,
including a higher percentage
of sales in the beauty
and health care businesses
than in the base period,
more than offset the negative
margin impact of strong
developing market growth.
-
Selling, general
and administrative
expenses (SG&A) increased versus
the prior year, but at
a lower rate compared to
net sales. SG&A
as a percentage of
net sales decreased
120 basis points,
reflecting the scale
benefits of strong
top line growth partly
offset by continued
marketing investments
in product initiatives
and the base business.
- The company’s operating
cash flow for
the quarter was $2.65
billion compared to $2.98
billion in the comparable
prior year period. Higher
net earnings were offset
by an increase in working
capital, primarily inventory.
Inventory levels increased
behind pipeline build
for initiatives and higher
commodity costs, as well
as rebuilding inventories
in a number of categories
that were previously
on allocation. Capital
expenditures for the
quarter were 3.3 percent,
slightly lower than the
prior year period and
below the company’s long-term
target of about 4 percent
of net sales. Free cash
flow, defined as cash
flow from operating activities
less capital expenditures,
was $2.17 billion for
the quarter. Free cash
flow productivity was
126 percent. This brings
free cash flow productivity
to above 90 percent
for the fiscal
year to date, in-line
with the company’s long-term
objective.
- During the quarter,
the company invested
$1.95 billion on share
repurchases. Share repurchases
made during the March
quarter had essentially
no impact on diluted
earnings per share. Additionally,
the company recently
announced a 12 percent
increase to its quarterly
stock dividend rate.
Business Segment
Discussion
The following provides perspective on
the company’s January – March results by business segment.
Beauty Care
- Beauty care delivered
another quarter of
double-digit earnings
growth. Unit volume
increased seven percent
with developing markets
contributing double-digit
growth. Skin care
and fine fragrances
both grew volume double-digits
behind the Olay® and
Hugo Boss® brands,
respectively. Hair
care volume increased
mid-single digits on
the continued strength
of the Pantene®, Head & Shoulders®,
Rejoice® and Aussie®
brands. In feminine
care, unit volume increased
high-single digits
behind double-digit
growth of the Always/Whisper®
and Naturella® brands.
Beauty care net sales
for the quarter increased
nine percent to $4.88
billion. Foreign exchange
contributed three percent
to sales growth, while
mix reduced sales by
one percent due to
strong growth in developing
markets. Net earnings
increased 23 percent
to $701 million driven
by robust volume growth,
the impact of the company’s
increased ownership
of the China operation
and the impact of
the domination and
profit transfer agreement
with Wella. Net earnings
were reduced by continued
marketing investments
to support initiatives
including the launch
of Olay Quench®, the
expansion of Olay®
in Europe and Asia
, Herbal Essences®
in Japan , Rejoice®
in Greater China,
and Pantene Pro-Health®.
Health, Baby & Family Care
- Health Care delivered
double-digit unit volume,
sales and earnings growth
against a strong base period.
Unit volume increased 14
percent behind the growth
of Prilosec OTC®, Actonel®
and double-digit growth
in developing markets,
primarily in oral care.
Globally, oral care posted
high single-digit volume
growth despite a challenging
competitive environment
in dentifrice and a declining
market for tooth whitening
products. Vicks® also posted
strong unit volume growth
due to the later cough/cold
season in North America
and Western Europe this
year. Net sales increased
16 percent to $2.00 billion
aided by a positive two
percent foreign exchange
impact. Pricing added one
percent to sales, while
product mix reduced sales
by one percent due to the
shift of Macrobid® branded
sales to generic sales
and strong developing market
growth. Net earnings were
$252 million, an increase
of 22 percent, against
a strong base period comparison
where earnings grew 48
percent. Earnings growth
was driven by increased
volume, partially offset
by the negative profit
impact from the generic
sales of Macrobid versus
branded Macrobid in the
base.
- Baby and family care
delivered another quarter
of very strong results.
Unit volume increased eight
percent led by baby care
behind continued growth
of the Baby Stages of Development®
line. Family care posted
strong volume growth behind
recent initiatives on Charmin®
in North America . Net
sales increased 13 percent
to $3.05 billion, with
foreign exchange contributing
three percent to sales
growth. Pricing added one
percent to sales growth.
Pricing actions in family
care to recover higher
commodity costs were partially
offset by targeted pricing
investments in select baby
care markets, primarily
in Western Europe in response
to competitive activity.
Earnings grew 56 percent
to $339 million behind
the scale benefits of volume
growth and manufacturing
cost savings. The aforementioned
price increase largely
offset the negative impact
of higher commodity prices
versus the prior year.
Household Care
- Fabric and home care
unit volume increased five
percent driven primarily
by strong results in developing
markets. Also contributing
to volume growth were the
continued success of Lenor®
and Febreze Air Effects®
and the launches of Tide
Coldwater® and Mr. Clean
Magic Reach®. Net sales
increased seven percent
to $3.82 billion. Foreign
exchange added three percent
to sales growth. The mix
impact of strong growth
in developing markets reduced
sales by one percent. Net
earnings were $508 million,
a decrease of six percent.
The decrease in earnings
is due primarily to higher
commodity costs and a one-time
charge related to supply
chain optimization. Additionally,
earnings margin was negatively
impacted by the mix effect
of strong growth in developing
markets.
- Snacks and coffee delivered
strong earnings growth.
Unit volume was up six
percent, with the coffee
category up double-digits.
Pringles® volume grew behind
expanded distribution and
merchandizing due to customized
flavors and Pringles Prints®.
Net sales increased 16
percent to $767 million.
Pricing increased sales
nine percent due to the
recent action taken on
Folgers® to recover higher
commodity costs. Foreign
exchange had a positive
one percent effect on sales
growth. Net earnings were
$105 million, an increase
of 91 percent against a
soft prior year comparison.
Current year earnings growth
reflects higher volume,
pricing and lower merchandising
spending versus the base
period.
April – June Quarter Guidance
For
the June quarter, net sales are expected to increase at a
high-single digit rate versus the comparable prior year period.
Foreign exchange is expected to add two to three percent to
sales growth. The negative impacts to top line growth from
developing market mix and
the juice divestiture are expected to be offset by pricing.
Earnings per share for the June quarter are expected to
be in the range of $0.54 to $0.55. For the fiscal year, the
company increased its earnings per share guidance to a range
of $2.64 to $2.65. The expected effective tax rate for the
fiscal year is about 30.5 percent. This excludes the potential
impact of repatriation of earnings under the American Jobs
Creation Act of 2004. The company is waiting for proposed
technical corrections to the Act to be adopted prior to deciding
the amount of earnings, if any, it may repatriate under the
Act.
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. 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 agreement to merge with The Gillette Company,
including obtaining the related required shareholder and regulatory
approvals; (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 other intellectual property matters), 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 (including debt
related to the company’s announced plan to repurchase shares
of the company’s stock), interest rate and certain commodity
cost exposures; (8) the ability to manage the 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 the pattern of sales, including the variation in sales
volume within periods; (10) the ability to successfully manage
competitive factors, including prices, promotional incentives
and trade terms for products; (11) the ability to obtain patents
and respond to technological advances attained by competitors
and patents granted to competitors; (12) the ability to successfully
manage increases in the prices of raw materials used to make
the company's products; (13) the ability to stay close to
consumers in an era of increased media fragmentation; and
(14) the ability to stay on the leading edge of innovation.
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 P&G
Two 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®, Tide®, Ariel®, Always®, Whisper®, Pantene®, Bounty®,
Pringles®, Folgers®, Charmin®, Downy®, Lenor®, Iams®, Crest®,
Actonel®, Olay®, Clairol Nice ‘n Easy®, Head & Shoulders®
and Wella®. The P&G community consists of about 110,000
employees working in almost 80 countries worldwide. Please
visit http://www.pg.com for
the latest news and in-depth information about P&G and
its brands.
# # #
P&G Media
Contact:
In the US : 1-866-PROCTER or 1-866-776-2837
International: +1-513-945-9087
P&G Investor
Relations Contact:
Thomas Tippl: +513-983-2414
The Procter & Gamble
Company
Measures
Not Defined by U.S. GAAP
In accordance with the
SEC’s Regulation G, the following
provides definitions of measures
used in the earnings release
that are not defined by accounting
principles generally accepted
in the United States (U.S.
GAAP) and the reconciliation
to the most closely related
GAAP measure.
Organic sales growth is
a non-GAAP measure of reported
sales growth excluding the
impacts of acquisitions,
divestitures and foreign
exchange from year-over-year
comparisons. The company
believes this provides investors
with a more complete understanding
of underlying results and
trends of the base businesses
by providing sales on a consistent
basis. The reconciliation
of reported sales growth
to organic sales growth:
| Total Sales Growth |
10% |
| Less: Foreign Exchange
Impact |
3% |
| Less: Acquisitions/Divestitures |
-1% |
| Organic Sales Growth |
8% |
The
company also reports free
cash flow. Free cash flow
is defined as cash from operating
activities flow, less capital
expenditures. The company
views free cash flow as an
important indicator of the
cash available for dividends
and discretionary investment.
Free cash flow is also one
of the measures used to evaluate
management and is a factor
in determining at-risk compensation
levels. Free cash flow productivity
is defined as the ratio of
free cash flow to net earnings,
and is another measure used
to evaluate management’s
performance. The company’s
target for free cash flow
productivity is 90 percent.
The reconciliation of free
cash flow and free cash flow
productivity is provided
below:
| ($MM) |
Operating
Cash Flow |
Capital
Spending |
Free Cash
Flow |
|
Free
Cash Flow Productivity |
| Jul-Sept 03 |
1,606 |
364 |
1,242 |
1,761 |
71% |
| Oct-Dec 03 |
2,355 |
446 |
1,909 |
1,818 |
105% |
| Jan-Mar 04 |
2,978 |
521 |
2,457 |
1,528 |
161% |
| Apr-June 04 |
2,423 |
693 |
1,730 |
1,374 |
126% |
| Jul-Jun 04 |
9,362 |
2,024 |
7,338 |
6,481 |
113% |
| |
|
|
|
|
|
| Jul-Sep 04 |
1,918 |
413 |
1,505 |
2,001 |
75% |
| Oct-Dec 04 |
2,061 |
498 |
1,563 |
2,039 |
77% |
| Jan-Mar 05 |
2,645 |
475 |
2,170 |
1,710 |
126% |
| Jul-Mar 05 |
6,624 |
1,386 |
5,238 |
5,760 |
91% |
# # #
