0000080424pg:ShaveCareMember2021-07-012021-09-30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one) | | | | | | | | |
x | True | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 20212022
OR | | | | | | | | |
o | False | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
THE PROCTER & GAMBLE COMPANY
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | |
Ohio | OH | 1-434 | | 31-0411980 |
(State of Incorporation) | | (Commission File Number) | | (I.R.S. Employer Identification Number) |
One Procter & Gamble Plaza | | Cincinnati | OH | |
One Procter & Gamble Plaza, Cincinnati, Ohio | 45202 |
(Address of principal executive offices) | (Zip Code) |
(513) 983-1100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, without Par Value | PG | NYSE |
2.000% Notes due 2021 | PG21 | NYSE |
2.000% Notes due 2022 | PG22B | NYSE |
1.125% Notes due 2023 | PG23A | NYSE |
0.500% Notes due 2024 | PG24A | NYSE |
0.625% Notes due 2024 | PG24B | NYSE |
1.375% Notes due 2025 | PG25 | NYSE |
0.110% Notes due 2026 | PG26D | NYSE |
4.875% EUR notes due May 2027 | PG27A | NYSE |
1.200% Notes due 2028 | PG28 | NYSE |
1.250% Notes due 2029 | PG29B | NYSE |
1.800% Notes due 2029 | PG29A | NYSE |
6.250% GBP notes due January 2030 | PG30 | NYSE |
0.350% Notes due 2030 | PG30C | NYSE |
0.230% Notes due 2031 | PG31A | NYSE |
5.250% GBP notes due January 2033 | PG33 | NYSE |
1.875% Notes due 2038 | PG38 | NYSE |
0.900% Notes due 2041 | PG41 | NYSE |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | þ | | | Accelerated filer | ¨ | |
| Non-accelerated filer | ¨ | | | Smaller reporting company | ¨ | False |
| | | | | Emerging growth company | ¨ | False |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ False
There were 2,419,947,8192,369,696,862 shares of Common Stock outstanding as of September 30, 2021.2022.
PART I. FINANCIAL INFORMATION
| | | | | |
Item 1. | Financial Statements |
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS | | | Three Months Ended September 30 | | | Three Months Ended September 30 | |
Amounts in millions except per share amounts | Amounts in millions except per share amounts | 2021 | | 2020 | | Amounts in millions except per share amounts | 2022 | | 2021 | |
NET SALES | NET SALES | $ | 20,338 | | | $ | 19,318 | | | NET SALES | $ | 20,612 | | | $ | 20,338 | | |
Cost of products sold | Cost of products sold | 10,365 | | | 9,142 | | | Cost of products sold | 10,846 | | | 10,365 | | |
Selling, general and administrative expense | Selling, general and administrative expense | 4,950 | | | 4,895 | | | Selling, general and administrative expense | 4,827 | | | 4,950 | | |
OPERATING INCOME | OPERATING INCOME | 5,023 | | | 5,281 | | | OPERATING INCOME | 4,939 | | | 5,023 | | |
Interest expense | Interest expense | (109) | | | (136) | | | Interest expense | (123) | | | (109) | | |
Interest income | Interest income | 11 | | | 10 | | | Interest income | 42 | | | 11 | | |
Other non-operating income, net | Other non-operating income, net | 110 | | | 142 | | | Other non-operating income, net | 139 | | | 110 | | |
EARNINGS BEFORE INCOME TAXES | EARNINGS BEFORE INCOME TAXES | 5,035 | | | 5,297 | | | EARNINGS BEFORE INCOME TAXES | 4,997 | | | 5,035 | | |
Income taxes | Income taxes | 909 | | | 989 | | | Income taxes | 1,034 | | | 909 | | |
NET EARNINGS | NET EARNINGS | 4,126 | | | 4,308 | | | NET EARNINGS | 3,963 | | | 4,126 | | |
Less: Net earnings attributable to noncontrolling interests | Less: Net earnings attributable to noncontrolling interests | 14 | | | 31 | | | Less: Net earnings attributable to noncontrolling interests | 24 | | | 14 | | |
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE | NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE | $ | 4,112 | | | $ | 4,277 | | | NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE | $ | 3,939 | | | $ | 4,112 | | |
| NET EARNINGS PER SHARE (1) | NET EARNINGS PER SHARE (1) | | | NET EARNINGS PER SHARE (1) | | |
Basic | Basic | $ | 1.66 | | | $ | 1.69 | | | Basic | $ | 1.62 | | | $ | 1.66 | | |
Diluted | Diluted | $ | 1.61 | | | $ | 1.63 | | | Diluted | $ | 1.57 | | | $ | 1.61 | | |
| DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 2,558.9 | | | 2,625.3 | | | DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 2,503.6 | | | 2,558.9 | | |
(1)Basic net earnings per share and Diluted net earnings per share are calculated on Net earnings attributable to Procter & Gamble.
See accompanying Notes to Consolidated Financial Statements.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | | | Three Months Ended September 30 | | | Three Months Ended September 30 | |
Amounts in millions | Amounts in millions | 2021 | | 2020 | | Amounts in millions | 2022 | | 2021 | |
NET EARNINGS | NET EARNINGS | $ | 4,126 | | | $ | 4,308 | | | NET EARNINGS | $ | 3,963 | | | $ | 4,126 | | |
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX | OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX | | | | | OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX | | | | |
Foreign currency translation | Foreign currency translation | (465) | | | 352 | | | Foreign currency translation | (712) | | | (465) | | |
Unrealized gains on investment securities | 5 | | | 6 | | | |
Unrealized gains/(losses) on defined benefit retirement plans | 142 | | | (69) | | | |
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX | (318) | | | 289 | | | |
Unrealized gains/(losses) on investment securities | | Unrealized gains/(losses) on investment securities | (2) | | | 5 | | |
Unrealized gains on defined benefit retirement plans | | Unrealized gains on defined benefit retirement plans | 87 | | | 142 | | |
TOTAL OTHER COMPREHENSIVE LOSS, NET OF TAX | | TOTAL OTHER COMPREHENSIVE LOSS, NET OF TAX | (627) | | | (318) | | |
TOTAL COMPREHENSIVE INCOME | TOTAL COMPREHENSIVE INCOME | 3,808 | | | 4,597 | | | TOTAL COMPREHENSIVE INCOME | 3,336 | | | 3,808 | | |
Less: Total comprehensive income attributable to noncontrolling interests | Less: Total comprehensive income attributable to noncontrolling interests | 14 | | | 36 | | | Less: Total comprehensive income attributable to noncontrolling interests | 19 | | | 14 | | |
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE | TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE | $ | 3,794 | | | $ | 4,561 | | | TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE | $ | 3,317 | | | $ | 3,794 | | |
See accompanying Notes to Consolidated Financial Statements.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS | Amounts in millions | Amounts in millions | | September 30, 2021 | | June 30, 2021 | Amounts in millions | | September 30, 2022 | | June 30, 2022 |
Assets | Assets | | | | | Assets | | | | |
CURRENT ASSETS | CURRENT ASSETS | | CURRENT ASSETS | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 10,370 | | | $ | 10,288 | | Cash and cash equivalents | | $ | 6,710 | | | $ | 7,214 | |
Accounts receivable | Accounts receivable | | 5,662 | | | 4,725 | | Accounts receivable | | 5,720 | | | 5,143 | |
INVENTORIES | INVENTORIES | | INVENTORIES | |
Materials and supplies | Materials and supplies | | 1,839 | | | 1,645 | | Materials and supplies | | 2,235 | | | 2,168 | |
Work in process | Work in process | | 769 | | | 719 | | Work in process | | 898 | | | 856 | |
Finished goods | Finished goods | | 3,699 | | | 3,619 | | Finished goods | | 4,457 | | | 3,900 | |
Total inventories | Total inventories | | 6,307 | | | 5,983 | | Total inventories | | 7,590 | | | 6,924 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | | 1,997 | | | 2,095 | | Prepaid expenses and other current assets | | 2,501 | | | 2,372 | |
TOTAL CURRENT ASSETS | TOTAL CURRENT ASSETS | | 24,336 | | | 23,091 | | TOTAL CURRENT ASSETS | | 22,521 | | | 21,653 | |
PROPERTY, PLANT AND EQUIPMENT, NET | PROPERTY, PLANT AND EQUIPMENT, NET | | 21,392 | | | 21,686 | | PROPERTY, PLANT AND EQUIPMENT, NET | | 20,593 | | | 21,195 | |
GOODWILL | GOODWILL | | 40,493 | | | 40,924 | | GOODWILL | | 38,761 | | | 39,700 | |
TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET | TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET | | 23,504 | | | 23,642 | | TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET | | 23,465 | | | 23,679 | |
OTHER NONCURRENT ASSETS | OTHER NONCURRENT ASSETS | | 9,944 | | | 9,964 | | OTHER NONCURRENT ASSETS | | 10,942 | | | 10,981 | |
TOTAL ASSETS | TOTAL ASSETS | | $ | 119,669 | | | $ | 119,307 | | TOTAL ASSETS | | $ | 116,282 | | | $ | 117,208 | |
| Liabilities and Shareholders' Equity | Liabilities and Shareholders' Equity | | Liabilities and Shareholders' Equity | |
CURRENT LIABILITIES | CURRENT LIABILITIES | | CURRENT LIABILITIES | |
Accounts payable | Accounts payable | | $ | 14,223 | | | $ | 13,720 | | Accounts payable | | $ | 14,845 | | | $ | 14,882 | |
Accrued and other liabilities | Accrued and other liabilities | | 10,377 | | | 10,523 | | Accrued and other liabilities | | 10,056 | | | 9,554 | |
Debt due within one year | Debt due within one year | | 11,989 | | | 8,889 | | Debt due within one year | | 11,717 | | | 8,645 | |
TOTAL CURRENT LIABILITIES | TOTAL CURRENT LIABILITIES | | 36,589 | | | 33,132 | | TOTAL CURRENT LIABILITIES | | 36,618 | | | 33,081 | |
LONG-TERM DEBT | LONG-TERM DEBT | | 20,558 | | | 23,099 | | LONG-TERM DEBT | | 21,286 | | | 22,848 | |
DEFERRED INCOME TAXES | DEFERRED INCOME TAXES | | 6,323 | | | 6,153 | | DEFERRED INCOME TAXES | | 6,986 | | | 6,809 | |
OTHER NONCURRENT LIABILITIES | OTHER NONCURRENT LIABILITIES | | 9,791 | | | 10,269 | | OTHER NONCURRENT LIABILITIES | | 7,058 | | | 7,616 | |
TOTAL LIABILITIES | TOTAL LIABILITIES | | 73,261 | | | 72,653 | | TOTAL LIABILITIES | | 71,948 | | | 70,354 | |
SHAREHOLDERS’ EQUITY | SHAREHOLDERS’ EQUITY | | | | | SHAREHOLDERS’ EQUITY | | | | |
Preferred stock | Preferred stock | | 859 | | | 870 | | Preferred stock | | 834 | | | 843 | |
Common stock – shares issued – | Common stock – shares issued – | September 2021 | | 4,009.2 | | | Common stock – shares issued – | September 2022 | | 4,009.2 | | |
| | June 2021 | | 4,009.2 | | | 4,009 | | | 4,009 | | | June 2022 | | 4,009.2 | | | 4,009 | | | 4,009 | |
Additional paid-in capital | Additional paid-in capital | | 65,148 | | | 64,848 | | Additional paid-in capital | | 65,955 | | | 65,795 | |
Reserve for ESOP debt retirement | Reserve for ESOP debt retirement | | (964) | | | (1,006) | | Reserve for ESOP debt retirement | | (870) | | | (916) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (14,062) | | | (13,744) | | Accumulated other comprehensive loss | | (12,811) | | | (12,189) | |
Treasury stock | Treasury stock | | (117,240) | | | (114,973) | | Treasury stock | | (127,205) | | | (123,382) | |
Retained earnings | Retained earnings | | 108,361 | | | 106,374 | | Retained earnings | | 114,163 | | | 112,429 | |
Noncontrolling interest | Noncontrolling interest | | 297 | | | 276 | | Noncontrolling interest | | 259 | | | 265 | |
TOTAL SHAREHOLDERS’ EQUITY | TOTAL SHAREHOLDERS’ EQUITY | | 46,408 | | | 46,654 | | TOTAL SHAREHOLDERS’ EQUITY | | 44,334 | | | 46,854 | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 119,669 | | | $ | 119,307 | | TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 116,282 | | | $ | 117,208 | |
See accompanying Notes to Consolidated Financial Statements.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | | | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2022 |
Dollars in millions; shares in thousands | Dollars in millions; shares in thousands | Common Stock | Preferred Stock | Add-itional Paid-In Capital | Reserve for ESOP Debt Retirement | Accumulated Other Comp-rehensive Income/(Loss) | Treasury Stock | Retained Earnings | Non-controlling Interest | Total Share-holders' Equity | Dollars in millions; shares in thousands | Common Stock | Preferred Stock | Add-itional Paid-In Capital | Reserve for ESOP Debt Retirement | Accumulated Other Comp-rehensive Loss | Treasury Stock | Retained Earnings | Non-controlling Interest | Total Share-holders' Equity |
Shares | Amount | Shares | Amount |
BALANCE JUNE 30, 2021 | 2,429,706 | | $4,009 | | $870 | | $64,848 | | ($1,006) | | ($13,744) | | ($114,973) | | $106,374 | | $276 | | $46,654 | | |
BALANCE JUNE 30, 2022 | | BALANCE JUNE 30, 2022 | 2,393,877 | | $4,009 | | $843 | | $65,795 | | ($916) | | ($12,189) | | ($123,382) | | $112,429 | | $265 | | $46,854 | |
Net earnings | Net earnings | | | | 4,112 | | 14 | | 4,126 | | Net earnings | | | | 3,939 | | 24 | | 3,963 | |
Other comprehensive income/(loss) | | | | (318) | | | — | | (318) | | |
Dividends and dividend equivalents ($0.8698 per share): | | | | |
Other comprehensive loss | | Other comprehensive loss | | | | (622) | | | (5) | | (627) | |
Dividends and dividend equivalents ($0.9133 per share): | | Dividends and dividend equivalents ($0.9133 per share): | | | |
Common | Common | | | | (2,118) | | | (2,118) | | Common | | | | (2,189) | | | (2,189) | |
Preferred, net of tax benefits | | | | (70) | | | (70) | | |
Preferred | | Preferred | | | | (71) | | | (71) | |
Treasury stock purchases | Treasury stock purchases | (19,353) | | | | (2,750) | | | (2,750) | | Treasury stock purchases | (28,189) | | | | (4,000) | | | (4,000) | |
Employee stock plans | Employee stock plans | 8,437 | | | | 300 | | | 474 | | | 774 | | Employee stock plans | 3,011 | | | | 159 | | | 169 | | | 328 | |
Preferred stock conversions | Preferred stock conversions | 1,158 | | | (11) | | 2 | | | 9 | | | — | | Preferred stock conversions | 998 | | | (9) | | 1 | | | 8 | | | — | |
ESOP debt impacts | ESOP debt impacts | | | | 42 | | | 63 | | | 105 | | ESOP debt impacts | | | | 46 | | | 55 | | | 101 | |
Noncontrolling interest, net | Noncontrolling interest, net | | | | (2) | | | 7 | | 5 | | Noncontrolling interest, net | | | | — | | | (25) | | (25) | |
BALANCE SEPTEMBER 30, 2021 | 2,419,948 | | $4,009 | | $859 | | $65,148 | | ($964) | | ($14,062) | | ($117,240) | | $108,361 | | $297 | | $46,408 | | |
BALANCE SEPTEMBER 30, 2022 | | BALANCE SEPTEMBER 30, 2022 | 2,369,697 | | $4,009 | | $834 | | $65,955 | | ($870) | | ($12,811) | | ($127,205) | | $114,163 | | $259 | | $44,334 | |
| | | Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2021 |
Dollars in millions; shares in thousands | Dollars in millions; shares in thousands | Common Stock | Preferred Stock | Add-itional Paid-In Capital | Reserve for ESOP Debt Retirement | Accumulated Other Comp-rehensive Income/(Loss) | Treasury Stock | Retained Earnings | Non-controlling Interest | Total Share-holders' Equity | Dollars in millions; shares in thousands | Common Stock | Preferred Stock | Add-itional Paid-In Capital | Reserve for ESOP Debt Retirement | Accumulated Other Comp-rehensive Loss | Treasury Stock | Retained Earnings | Non-controlling Interest | Total Share-holders' Equity |
Shares | Amount | Shares | Amount |
BALANCE JUNE 30, 2020 | 2,479,746 | | $4,009 | | $897 | | $64,194 | | ($1,080) | | ($16,165) | | ($105,573) | | $100,239 | | $357 | | $46,878 | | |
BALANCE JUNE 30, 2021 | | BALANCE JUNE 30, 2021 | 2,429,706 | | $4,009 | | $870 | | $64,848 | | ($1,006) | | ($13,744) | | ($114,973) | | $106,374 | | $276 | | $46,654 | |
Net earnings | Net earnings | | | | 4,277 | | 31 | | 4,308 | | Net earnings | | | | 4,112 | | 14 | | 4,126 | |
Other comprehensive income/(loss) | | | | 284 | | | 5 | | 289 | | |
Dividends and dividend equivalents ($0.7907 per share): | | | | |
Other comprehensive loss | | Other comprehensive loss | | | | (318) | | | — | | (318) | |
Dividends and dividend equivalents ($0.8698 per share): | | Dividends and dividend equivalents ($0.8698 per share): | | | |
Common | Common | | | | (1,969) | | | (1,969) | | Common | | | | (2,118) | | | (2,118) | |
Preferred, net of tax benefits | | | | (66) | | | (66) | | |
Preferred | | Preferred | | | | (70) | | | (70) | |
Treasury stock purchases | Treasury stock purchases | (14,642) | | | | (2,000) | | | (2,000) | | Treasury stock purchases | (19,353) | | | | (2,750) | | | (2,750) | |
Employee stock plans | Employee stock plans | 13,504 | | | | 271 | | | 772 | | | 1,043 | | Employee stock plans | 8,437 | | | | 300 | | | 474 | | | 774 | |
Preferred stock conversions | Preferred stock conversions | 998 | | | (9) | | 2 | | | 7 | | | — | | Preferred stock conversions | 1,158 | | | (11) | | 2 | | | 9 | | | — | |
ESOP debt impacts | ESOP debt impacts | | | | 34 | | | 58 | | | 92 | | ESOP debt impacts | | | | 42 | | | 63 | | | 105 | |
Noncontrolling interest, net | Noncontrolling interest, net | | | | 1 | | 1 | | Noncontrolling interest, net | | | | (2) | | | 7 | | 5 | |
BALANCE SEPTEMBER 30, 2020 | 2,479,606 | | $4,009 | | $888 | | $64,467 | | ($1,046) | | ($15,881) | | ($106,794) | | $102,539 | | $394 | | $48,576 | | |
BALANCE SEPTEMBER 30, 2021 | | BALANCE SEPTEMBER 30, 2021 | 2,419,948 | | $4,009 | | $859 | | $65,148 | | ($964) | | ($14,062) | | ($117,240) | | $108,361 | | $297 | | $46,408 | |
See accompanying Notes to Consolidated Financial Statements.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | | | | | | |
| Three Months Ended September 30 |
Amounts in millions | 2021 | | 2020 |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | $ | 10,288 | | | $ | 16,181 | |
OPERATING ACTIVITIES | | | |
Net earnings | 4,126 | | | 4,308 | |
Depreciation and amortization | 711 | | | 671 | |
Share-based compensation expense | 116 | | | 89 | |
Deferred income taxes | 57 | | | 193 | |
Gain on sale of assets | (73) | | | (12) | |
Changes in: | | | |
Accounts receivable | (1,012) | | | (825) | |
Inventories | (409) | | | (137) | |
Accounts payable, accrued and other liabilities | 1,261 | | | 442 | |
Other operating assets and liabilities | (178) | | | (30) | |
Other | 44 | | | 40 | |
TOTAL OPERATING ACTIVITIES | 4,643 | | | 4,739 | |
INVESTING ACTIVITIES | | | |
Capital expenditures | (1,091) | | | (850) | |
Proceeds from asset sales | 85 | | | 21 | |
TOTAL INVESTING ACTIVITIES | (1,006) | | | (829) | |
FINANCING ACTIVITIES | | | |
Dividends to shareholders | (2,182) | | | (2,030) | |
Increases in short-term debt maturing in more than three months | 1,792 | | | 1,507 | |
Reductions in short-term debt maturing in more than three months | (1,422) | | | (829) | |
Increases/(reductions) in other short-term debt | 512 | | | (4,246) | |
Reductions to long-term debt | (26) | | | (25) | |
Treasury stock purchases | (2,750) | | | (2,000) | |
Impact of stock options and other | 648 | | | 893 | |
TOTAL FINANCING ACTIVITIES | (3,428) | | | (6,730) | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (127) | | | 31 | |
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 82 | | | (2,789) | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | 10,370 | | | $ | 13,392 | |
| | | | | | | | | | | |
| Three Months Ended September 30 |
Amounts in millions | 2022 | | 2021 |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | $ | 7,214 | | | $ | 10,288 | |
OPERATING ACTIVITIES | | | |
Net earnings | 3,963 | | | 4,126 | |
Depreciation and amortization | 663 | | | 711 | |
Share-based compensation expense | 105 | | | 116 | |
Deferred income taxes | (130) | | | 57 | |
Gain on sale of assets | (1) | | | (73) | |
Changes in: | | | |
Accounts receivable | (740) | | | (1,012) | |
Inventories | (893) | | | (409) | |
Accounts payable, accrued and other liabilities | 1,495 | | | 1,261 | |
Other operating assets and liabilities | (454) | | | (178) | |
Other | 62 | | | 44 | |
TOTAL OPERATING ACTIVITIES | 4,070 | | | 4,643 | |
INVESTING ACTIVITIES | | | |
Capital expenditures | (890) | | | (1,091) | |
Proceeds from asset sales | 5 | | | 85 | |
Acquisitions, net of cash acquired | (2) | | | — | |
Proceeds from sales and maturities of short-term investments | 55 | | | — | |
TOTAL INVESTING ACTIVITIES | (832) | | | (1,006) | |
FINANCING ACTIVITIES | | | |
Dividends to shareholders | (2,255) | | | (2,182) | |
Additions to short-term debt with original maturities of more than three months | 2,975 | | | 1,792 | |
Reductions in short-term debt with original maturities of more than three months | (265) | | | (1,422) | |
Net additions to other short-term debt | 1,727 | | | 512 | |
Reductions in long-term debt | (1,877) | | | (26) | |
Treasury stock purchases | (4,000) | | | (2,750) | |
Impact of stock options and other | 188 | | | 648 | |
TOTAL FINANCING ACTIVITIES | (3,507) | | | (3,428) | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (235) | | | (127) | |
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (504) | | | 82 | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | 6,710 | | | $ | 10,370 | |
See accompanying Notes to Consolidated Financial Statements.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.2022. In the opinion of management, the accompanying unaudited Consolidated Financial Statements of The Procter & Gamble Company and subsidiaries (the "Company," "Procter & Gamble," "P&G," "we" or "our") contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods reported. However, the results of operations included in such financial statements may not necessarily be indicative of annual results.
For the quarter ended September 30, 2021, the Company began to present increases and reductions in short-term debt with maturities of more than three months separately within the Consolidated Statements of Cash Flows. The presentation for the quarter ended September 30, 2020 has been revised to align with the current period presentation. This change had no impact on total financing activities and we have concluded the change is not material.
2. New Accounting Pronouncements and Policies
In March 2020,November 2021, the Financial Accounting Standards Board ("FASB")(FASB) issued Accounting Standards Update ("ASU")(ASU) No. 2020-04, "Reference Rate Reform2021-10, "Government Assistance (Topic 848)832): FacilitationDisclosures by Business Entities about Government Assistance". This guidance requires annual disclosures for transactions with a government authority that are accounted for by applying a grant or contribution model. These amendments are effective for annual periods beginning after December 15, 2021, with early adoption permitted. We have completed our evaluation of significant transactions. The guidance has not had, and is not expected to have, a material impact on the Effects of Reference Rate Reform onCompany's Consolidated Financial Reporting." The amendments provide optional expedients and exceptions for applying generally accepted accounting principles ("GAAP") to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. Statements.
In January 2021,September 2022, the FASB issued ASU No. 2021-01, "Reference Rate Reform (Topic 848)2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50): Scope",Disclosure of Supplier Finance Program Obligations". This guidance requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. These amendments are effective for fiscal years beginning after December 15, 2022, except for the amendment on rollforward information, which clarified that certain optional expedients and exceptions in Topic 848 apply to derivative instruments that are affected by the discounting transition due to reference rate reform. These ASUs wereis effective upon issuance and may be applied prospectively to contract modifications and hedging relationships entered or evaluated throughfor fiscal years beginning after December 31, 2022.15, 2023. We are currently evaluatingassessing the impact of this guidance on our contracts and do not expect a material impact at this time. Specific elections of expedients and exceptions provided under the ASUs will be made when contract modifications in response to reference rate reform commence.Consolidated Financial Statements.
No other new accounting pronouncement issued or effective during the fiscal year had, or is expected to have, a material impact on our Consolidated Financial Statements.
3. Segment Information
Under U.S. GAAP, our operating segments are aggregated into five reportable segments: 1) Beauty, 2) Grooming, 3) Health Care, 4) Fabric & Home Care and 5) Baby, Feminine & Family Care. Our five reportable segments are comprised of:
•Beauty: Hair Care (Conditioners, Shampoos, Styling Aids, Treatments); Skin and Personal Care (Antiperspirants and Deodorants, Personal Cleansing, Skin Care);
•Grooming: Shave Care (FemaleGrooming (Appliances, Female Blades & Razors, Male Blades & Razors, Pre- and Post-Shave Products, Other Shave Care)Grooming); Appliances;
•Health Care: Oral Care (Toothbrushes, Toothpaste, Other Oral Care); Personal Health Care (Gastrointestinal, Rapid Diagnostics, Respiratory, Vitamins/Minerals/Supplements, Pain Relief, Other Personal Health Care);
•Fabric & Home Care: Fabric Care (Fabric Enhancers, Laundry Additives, Laundry Detergents); Home Care (Air Care, Dish Care, P&G Professional, Surface Care); and
•Baby, Feminine & Family Care: Baby Care (Baby Wipes, Taped Diapers and Pants); Feminine Care (Adult Incontinence, Feminine Care); Family Care (Paper Towels, Tissues, Toilet Paper).
Amounts in millions of dollars unless otherwise specified.
Our operating segments are comprised of similar product categories. Operating segments that individually accounted for 5% or more of consolidated net sales are as follows: | | | | | | | | | | | | | | | |
| % of Net sales by operating segment (1) |
| Three Months Ended September 30 | | |
| 2021 | | 2020 | | | | |
Fabric Care | 23% | | 22% | | | | |
Home Care | 11% | | 12% | | | | |
Baby Care | 10% | | 10% | | | | |
Skin and Personal Care | 10% | | 10% | | | | |
Hair Care | 10% | | 10% | | | | |
Family Care | 8% | | 9% | | | | |
Oral Care | 8% | | 8% | | | | |
Shave Care | 7% | | 6% | | | | |
Feminine Care | 6% | | 6% | | | | |
Personal Health Care | 5% | | 5% | | | | |
Other | 2% | | 2% | | | | |
Total | 100% | | 100% | | | | |
| | | | | | | | | | | | | |
| % of Net sales by operating segment (1) |
| Three Months Ended September 30 | | |
| 2022 | | 2021 | | | | |
Fabric Care | 23% | | 23% | | | | |
Home Care | 12% | | 11% | | | | |
Skin and Personal Care | 10% | | 10% | | | | |
Baby Care | 10% | | 10% | | | | |
Hair Care | 9% | | 10% | | | | |
Family Care | 8% | | 8% | | | | |
Grooming (2) | 8% | | 7% | | | | |
Oral Care | 8% | | 8% | | | | |
Feminine Care | 6% | | 6% | | | | |
Personal Health Care | 6% | | 5% | | | | |
Other | —% | | 2% | | | | |
Total | 100% | | 100% | | | | |
(1)% of Net sales by operating segment excludes sales held in Corporate.
(2)Effective July 1, 2022, the Grooming Sector Business Unit completed the full integration of its Shave Care and Appliances categories to cohesively serve consumers' grooming needs. This transition included the integration of the management team, strategic decision-making, innovation plans, financial targets, budgets and internal management reporting. For the three months ended September 30, 2021, Appliances was presented in Other.
The following is a summary of reportable segment results:
| | | Three Months Ended September 30 | | | Three Months Ended September 30 | |
| | Net Sales | | Earnings/(Loss) Before Income Taxes | | Net Earnings | | | Net Sales | | Earnings/(Loss) Before Income Taxes | | Net Earnings/(Loss) | |
Beauty | Beauty | 2021 | $3,964 | | $1,242 | | $991 | | Beauty | 2022 | $ | 3,961 | | | $ | 1,271 | | | $ | 1,011 | | |
| | 2020 | 3,786 | | 1,228 | | 976 | | | 2021 | 3,964 | | | 1,242 | | | 991 | | |
Grooming | Grooming | 2021 | 1,687 | | 518 | | 417 | | Grooming | 2022 | 1,625 | | | 503 | | | 404 | | |
| | 2020 | 1,601 | | 426 | | 355 | | | 2021 | 1,687 | | | 518 | | | 417 | | |
Health Care | Health Care | 2021 | 2,676 | | 695 | | 529 | | Health Care | 2022 | 2,757 | | | 800 | | | 617 | | |
| | 2020 | 2,471 | | 679 | | 525 | | | 2021 | 2,676 | | | 695 | | | 529 | | |
Fabric & Home Care | Fabric & Home Care | 2021 | 7,009 | | 1,546 | | 1,191 | | Fabric & Home Care | 2022 | 7,082 | | | 1,543 | | | 1,172 | | |
| | 2020 | 6,644 | | 1,743 | | 1,349 | | | 2021 | 7,009 | | | 1,546 | | | 1,191 | | |
Baby, Feminine & Family Care | Baby, Feminine & Family Care | 2021 | 4,864 | | 1,075 | | 826 | | Baby, Feminine & Family Care | 2022 | 4,934 | | | 1,055 | | | 805 | | |
| | 2020 | 4,723 | | 1,318 | | 1,010 | | | 2021 | 4,864 | | | 1,075 | | | 826 | | |
Corporate | Corporate | 2021 | 138 | | (41) | | 172 | | Corporate | 2022 | 253 | | | (175) | | | (46) | | |
| | 2020 | 93 | | (97) | | 93 | | | 2021 | 138 | | | (41) | | | 172 | | |
Total Company | Total Company | 2021 | $20,338 | | $5,035 | | $4,126 | | Total Company | 2022 | $ | 20,612 | | | $ | 4,997 | | | $ | 3,963 | | |
| | 2020 | 19,318 | | 5,297 | | 4,308 | | | 2021 | 20,338 | | | 5,035 | | | 4,126 | | |
Amounts in millions of dollars unless otherwise specified.
4. Goodwill and Other Intangible Assets
Goodwill is allocated by reportable segment as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Beauty | | Grooming | | Health Care | | Fabric & Home Care | | Baby, Feminine & Family Care | | Total Company |
Goodwill at June 30, 2021 | $ | 13,257 | | | $ | 13,095 | | | $ | 8,046 | | | $ | 1,873 | | | $ | 4,653 | | | $ | 40,924 | |
Translation and other | (152) | | | (111) | | | (109) | | | (14) | | | (45) | | | (431) | |
Goodwill at September 30, 2021 | $ | 13,105 | | | $ | 12,984 | | | $ | 7,937 | | | $ | 1,859 | | | $ | 4,608 | | | $ | 40,493 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Beauty | | Grooming | | Health Care | | Fabric & Home Care | | Baby, Feminine & Family Care | | Total Company |
Goodwill at June 30, 2022 | $ | 13,296 | | | $ | 12,571 | | | $ | 7,589 | | | $ | 1,808 | | | $ | 4,436 | | | $ | 39,700 | |
Acquisitions and divestitures | — | | | — | | | — | | | — | | | — | | | — | |
Translation and other | (344) | | | (254) | | | (217) | | | (29) | | | (95) | | | (939) | |
Goodwill at September 30, 2022 | $ | 12,952 | | | $ | 12,317 | | | $ | 7,372 | | | $ | 1,779 | | | $ | 4,341 | | | $ | 38,761 | |
Goodwill decreased from June 30, 20212022 primarily due to currency translation, partially offset by a minor acquisition within Health Care.translation.
Identifiable intangible assets at September 30, 20212022 were comprised of:
| | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Intangible assets with determinable lives | Intangible assets with determinable lives | $ | 8,570 | | | $ | (6,149) | | Intangible assets with determinable lives | $ | 8,890 | | | $ | (6,284) | |
Intangible assets with indefinite lives | Intangible assets with indefinite lives | 21,083 | | | — | | Intangible assets with indefinite lives | 20,859 | | | — | |
Total identifiable intangible assets | Total identifiable intangible assets | $ | 29,653 | | | $ | (6,149) | | Total identifiable intangible assets | $ | 29,749 | | | $ | (6,284) | |
Intangible assets with determinable lives consist of brands, patents, technology and customer relationships. The intangible assets with indefinite lives primarily consist of brands. The amortization expense of determinable-lived intangible assets for the three months ended September 30, 2022 and 2021 was $80 and 2020 was $77, million and $84 million, respectively.
Goodwill and indefinite-lived intangible assets are not amortized but are tested at least annually for impairment by comparingimpairment. We use the estimated fair values of our reporting units and underlying indefinite-lived intangible assets to their respective carrying values. We typically use an income method to estimate the fair value of these assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. If the resulting fair value is less than the asset's carrying value, that difference represents an impairment. Our annual impairment testing for goodwill and indefinite-lived intangible assets occurs during the three months ended December 31.
The business unit valuations used to test goodwill and intangible assets for impairment depend on a number of significant estimates and assumptions, including macroeconomic conditions, overall category growth rates, competitive activities, cost containment, margin expansion and Company business plans. We believe these estimates and assumptions are reasonable. However, future changes in the judgments, assumptions and estimates that are used in our impairment testing for goodwill and indefinite-lived intangible assets, including discount rates, tax rates or future cash flow projections, could result in significantly different estimates of the fair values. To the extent changes in such factors result in a failure to achieve the level of projected cash flows initially used to estimate fair value for purposes of establishing or subsequently impairing the carrying amount of goodwill and related intangible assets, we may need to record non-cash impairment charges in the future.
Most of our goodwill reporting units are comprised of a combination of legacy and acquired businesses and as a result have fair value cushions that at a minimum,significantly exceed two times their underlying carrying values. Certain of our goodwill reporting units,In connection with the Grooming operating segment integration as described further in particularNote 3, we concluded that the Shave Care and Appliances categories are comprised entirely of acquired businesses and as a result, have fair value cushions that are not as high. The Appliancesone reporting unit (Grooming) for goodwill impairment testing. Based on our impairment testing performed in the prior fiscal year, goodwill for the Grooming reporting unit has a fair value that significantly exceedscushion of over 40%.
Based on our impairment testing performed in the underlying carrying value. As previously disclosed,prior fiscal year, the carrying value of the Shave Care reporting unit and the related Gillette indefinite-lived intangible asset were impaired during the quarter ended June 30, 2019. Also, as previously disclosed, the Shave Care reporting unitasset's fair value exceeded its carrying value by more than 20%approximately 5% and is most susceptible to future impairment risk. Adverse changes in the business or in the macroeconomic environment, including foreign currency devaluation, increasing global inflation, market contraction from an economic recession and the Russia-Ukraine War, could reduce the underlying cash flows used to estimate the fair value of the Gillette indefinite-lived intangible asset fair value approximated its carrying value as of our fiscal 2021 and fiscal 2020trigger a future impairment testing dates. Accordingly, no impairment charge was recorded during the years ended June 30, 2021 or June 30, 2020.
charge. The most significant assumptions utilized in the determination of the estimated fair valuesvalue of the Shave Care reporting unit and the Gillette indefinite-lived intangible asset are the net sales and earnings growth rates (including residual growth rates), discount rate and royalty rates.
Net sales growth rates could be negatively impacted by reductions or changes in demand for our Grooming products, which may be caused by, among other things: changes in the discount rate.use and frequency of grooming products, by shifts in demand away from one or more of our higher priced products to lower priced products or potential supply chain constraints. In addition, relative global and country/regional macroeconomic factors, including the Russia-Ukraine War, could result in additional and prolonged devaluation of other countries' currencies relative to the U.S. dollar. The residual growth rate representsrates represent the expected rate at which the Shave Care reporting unit and Gillette brand areis expected to grow beyond the shorter-term business planning period. The residual growth raterates utilized in our fair value estimates isare consistent with the reporting unit and brand operating plans and approximatesapproximate expected long-term category market growth rates. The residual growth rate depends on overall market growth rates, the competitive environment, inflation, relative currency exchange rates and business activities that impact market share. As a result, the residual growth rate could be adversely impacted by a sustained deceleration in category growth, grooming habit changes, devaluation of currencies against the U.S. dollar or an increased competitive environment.
The discount rate, which is consistent with a weighted average cost of capital that is likely to be expected by a market participant, is based upon industry required rates of return, including consideration of both debt and equity components of the capital structure. Our discount rate may be impacted by adverse changes in the macroeconomic environment, volatility in the equity and debt markets or other country specific factors, such as
Amounts in millions of dollars unless otherwise specified.
further devaluation of currencies against the U.S. dollar. Spot rates as of the fair value measurement date are utilized in our fair value estimates for cash flows outside the U.S. Another key assumption
Amounts in ourmillions of dollars unless otherwise specified.
The royalty rate used to determine the estimated fair value determination offor the Gillette indefinite-lived intangible asset is the royalty rate, which is driven by historical and estimated future profitability of the underlying Gillette business. The royalty rate may be impacted by significant adverse changes in long-term operating margins.
While management can and has implemented strategies to address these events, changes in operating plans or adverse changes in the business or in the macroeconomic environment in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that would trigger future impairment charges of the Shave Care reporting unit's goodwill and indefinite-lived intangibles. The duration and severity of the pandemic could also result in future impairment charges for the Shave Care reporting unit goodwill and the Gillette indefinite-lived intangible asset. While we have concluded that a triggering event did not occur during the quarter ended September 30, 2021, the Gillette indefinite-lived intangible asset is most susceptible to future impairment risk. Our assessment of the Gillette intangible asset assumes the net sales growth rates will begin to recover from the impact of the COVID-19 pandemic during the current fiscal year. There continues to be a high level of uncertainty relating to how the pandemic will evolve, how governments and consumers will react, progress on the distribution of vaccines and whether the pandemic will have a longer-term effect on consumer habits. Accordingly, there continues to be risk related to this key assumption. A more prolonged pandemic recovery period could impact the assumptions utilized in the determination of the estimated fair values of the Shave Care reporting unit and the Gillette indefinite-lived intangible asset that are significant enough to trigger an impairment. Net sales and earnings growth rates could be negatively impacted by reductions or changes in demand for our shave care products, which may be caused by, among other things: the temporary inability of consumers to purchase our products due to illness, quarantine or other travel restrictions, or financial hardship, changes in the use and frequency of grooming products or by shifts in demand away from one or more of our higher priced products to lower priced products. In addition, relative global and country/regional macroeconomic factors could result in additional and prolonged devaluation of other countries’ currencies relative to the U.S. dollar. Finally, the discount rate utilized in our valuation model could be impacted by changes in the underlying interest rates and risk premiums included in the determination of the cost of capital. As of September 30, 2021, the carrying values of the Shave Care goodwill and the Gillette indefinite-lived intangible asset were $12.7 billion and $14.1 billion, respectively.
We performed a sensitivity analysis for the Shave Care reporting unit and the Gillette indefinite-lived intangible asset during our most recently completed annual impairment testing from the prior year, utilizing reasonably possible changes in the assumptions for the shorter-termdiscount rate, the short-term and residual growth rates discount rate, and the royalty raterates to demonstrate the potential impacts to the estimated fair values. The table below provides, in isolation, the estimated fair value impacts related to a 25 basis-point increase in the discount rate, a 25 basis-point decrease in our shorter-termshort-term and residual growth rates or a 50 basis pointbasis-point decrease in our royalty rate, anyrates, some of which in isolation, would result in an impairment of the Gillette indefinite-lived intangible asset.
| | | | | | | | | | | | | | | | | |
| Approximate Percent Change in Estimated Fair Value |
| +25 bps Discount Rate | | -25 bps Growth Rates | | -50 bps Royalty Rate |
Shave Care goodwill reporting unit | (6)% | | (6)% | | N/A |
Gillette indefinite-lived intangible asset | (6)% | | (6)% | | (4)% |
| | | | | | | | | | | | | | | | | |
| Approximate Percent Change in Estimated Fair Value |
| +25 bps Discount Rate | | -25 bps Growth Rates | | -50 bps Royalty Rate |
Gillette indefinite-lived intangible asset | (6)% | | (6)% | | (3)% |
Gillette's business results in the fiscal year ended June 30, 2022 exceeded the assumptions in our impairment testing from the prior year. However, during the three months ended September 30, 2022, the relative currency exchange rates devalued against the U.S. dollar and the inputs to the cost of capital determination increased. These macroeconomic changes place increased pressure on the fair value of the Gillette indefinite-lived intangible asset. Based on our assessment, we determined it is more likely than not that the fair value of the Gillette indefinite-lived intangible asset continues to exceed its carrying value of $14.1 billion as of September 30, 2022. Therefore, we have concluded that no triggering event has occurred in the current quarter. We will perform our annual impairment testing for goodwill and indefinite-lived intangible assets during the three months ended December 31, 2022.
Amounts in millions of dollars unless otherwise specified.
5. Earnings Per Share
Basic net earnings per common share are calculated by dividing Net earnings attributable to Procter & Gamble less preferred dividends by the weighted average number of common shares outstanding during the period. Diluted net earnings per common share are calculated by dividing Net earnings attributable to Procter & Gamble by the diluted weighted average number of common shares outstanding during the period. The diluted shares include the dilutive effect of stock options and other stock-based awards based on the treasury stock method and the assumed conversion of preferred stock.
Net earnings per share were calculated as follows: | CONSOLIDATED AMOUNTS | CONSOLIDATED AMOUNTS | Three Months Ended September 30 | | CONSOLIDATED AMOUNTS | Three Months Ended September 30 | |
| | 2021 | | 2020 | | | 2022 | | 2021 | |
Net earnings | Net earnings | $ | 4,126 | | | $ | 4,308 | | | Net earnings | $ | 3,963 | | | $ | 4,126 | | |
Less: Net earnings attributable to noncontrolling interests | Less: Net earnings attributable to noncontrolling interests | 14 | | | 31 | | | Less: Net earnings attributable to noncontrolling interests | 24 | | | 14 | | |
Net earnings attributable to P&G (Diluted) | Net earnings attributable to P&G (Diluted) | 4,112 | | | 4,277 | | | Net earnings attributable to P&G (Diluted) | 3,939 | | | 4,112 | | |
Less: Preferred dividends | Less: Preferred dividends | 70 | | | 66 | | | Less: Preferred dividends | 71 | | | 70 | | |
Net earnings attributable to P&G available to common shareholders (Basic) | Net earnings attributable to P&G available to common shareholders (Basic) | $ | 4,042 | | | $ | 4,211 | | | Net earnings attributable to P&G available to common shareholders (Basic) | $ | 3,868 | | | $ | 4,042 | | |
| SHARES IN MILLIONS | SHARES IN MILLIONS | | | SHARES IN MILLIONS | | |
Basic weighted average common shares outstanding | Basic weighted average common shares outstanding | 2,428.1 | | | 2,486.1 | | | Basic weighted average common shares outstanding | 2,385.5 | | | 2,428.1 | | |
Add: Effect of dilutive securities | Add: Effect of dilutive securities | | | Add: Effect of dilutive securities | | |
Convertible preferred shares (1) | Convertible preferred shares (1) | 80.5 | | | 83.9 | | | Convertible preferred shares (1) | 77.4 | | | 80.5 | | |
Stock options and other unvested equity awards (2) | Stock options and other unvested equity awards (2) | 50.3 | | | 55.3 | | | Stock options and other unvested equity awards (2) | 40.7 | | | 50.3 | | |
Diluted weighted average common shares outstanding | Diluted weighted average common shares outstanding | 2,558.9 | | | 2,625.3 | | | Diluted weighted average common shares outstanding | 2,503.6 | | | 2,558.9 | | |
| NET EARNINGS PER SHARE (3) | NET EARNINGS PER SHARE (3) | | | NET EARNINGS PER SHARE (3) | | |
Basic | Basic | $ | 1.66 | | | $ | 1.69 | | | Basic | $ | 1.62 | | | $ | 1.66 | | |
Diluted | Diluted | $ | 1.61 | | | $ | 1.63 | | | Diluted | $ | 1.57 | | | $ | 1.61 | | |
(1)An overview of preferred shares can be found in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.2022.
(2)Excludes 918 million and 19 million for the three months ended September 30, 20212022 and 2020,2021, respectively, of weighted average stock options outstanding because the exercise price of these options was greater than their average market value or their effect was antidilutive.
(3)Net earnings per share are calculated on Net earnings attributable to Procter & Gamble.
Amounts in millions of dollars unless otherwise specified.
6. Share-Based Compensation and Postretirement Benefits
The following table provides a summary of our share-based compensation expense and postretirement benefit costs:impacts:
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | |
| 2021 | | 2020 | | | | |
Share-based compensation expense | $ | 116 | | | $ | 89 | | | | | |
Net periodic benefit cost for pension benefits (1) | 48 | | | 47 | | | | | |
Net periodic benefit credit for other retiree benefits (1) | (103) | | | (80) | | | | | |
(1)The components of the total net periodic benefit cost/(credit) for both pension benefits and other retiree benefits for these interim periods, on an annualized basis, do not differ materially from the amounts disclosed in the Annual Report on Form 10-K for the fiscal year ended June 30, 2021. | | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | |
| 2022 | | 2021 | | | | |
Share-based compensation expense | $ | 105 | | | $ | 116 | | | | | |
Net periodic benefit cost for pension benefits | 43 | | | 48 | | | | | |
Net periodic benefit credit for other retiree benefits | (132) | | | (103) | | | | | |
Amounts in millions of dollars unless otherwise specified.
7. Risk Management Activities and Fair Value Measurements
As a multinational company with diverse product offerings, we are exposed to market risks, such as changes in interest rates, currency exchange rates and commodity prices. There have been no significant changes in our risk management policies or activities during the three months ended September 30, 2021.2022.
The Company has not changed its valuation techniques used in measuring the fair value of any financial assets and liabilities during the period. The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. There were no transfers between levels during the periods presented. Also, there was no significant activity within the Level 3 assets and liabilities during the periods presented. There were no significant assets or liabilities that were remeasured at fair value on a non-recurring basis for the three months ended September 30, 2021.2022.
Cash equivalents were $9.0$5.1 billion and $9.1$6.0 billion as of September 30, 20212022 and June 30, 2021,2022, respectively, and are classified as Level 1 within the fair value hierarchy. Other investments had a fair value of $160$93 and $192$140 as of September 30, 20212022 and June 30, 2021,2022, respectively, including equity securities of $131$66 and $163$113 as of September 30, 20212022 and June 30, 2021,2022, respectively, and are presented in Other noncurrent assets. Investments are measured at fair value and primarily classified as Level 1 and Level 2 within the fair value hierarchy. Level 1 are based on quoted market prices in active markets for identical assets, and Level 2 are based on quoted market prices for similar instruments. There are no material investment balances classified as Level 3 within the fair value hierarchy or using net asset value as a practical expedient. Unrealized gains on equity securities were $9 during the three months ended September 30, 2022. Unrealized losses on equity securities were $(29) during the three months ended September 30, 2021. Unrealized losses on equity securities were not significant for the three months ended September 30, 2020. These unrealized lossesgains/(losses) are recognized in the Consolidated Statements of Earnings in Other non-operating income/(expense),income, net.
The fair value of long-term debt was $28.4$21.8 billion and $28.8$25.7 billion as of September 30, 20212022 and June 30, 2021,2022, respectively. This includes the current portion of long-term debt instruments ($5.92.2 billion and $3.6 billion as of September 30, 20212022 and June 30, 2021,2022, respectively). Certain long-term debt (debt designated as a fair value hedge) is recorded at fair value. All other long-term debt is recorded at amortized cost but is measured at fair value for disclosure purposes. We consider our debt to be Level 2 in the fair value hierarchy. Fair values are generally estimated based on quoted market prices for identical or similar instruments.
Disclosures about Financial Instruments
The notional amounts and fair values of financial instruments used in hedging transactions as of September 30, 20212022 and June 30, 20212022 are as follows:
| | | Notional Amount | | Fair Value Asset | | Fair Value (Liability) | | Notional Amount | | Fair Value Asset | | Fair Value (Liability) |
| | September 30, 2021 | | June 30, 2021 | | September 30, 2021 | | June 30, 2021 | | September 30, 2021 | | June 30, 2021 | | September 30, 2022 | | June 30, 2022 | | September 30, 2022 | | June 30, 2022 | | September 30, 2022 | | June 30, 2022 |
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS | DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS | DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS |
Interest rate contracts | Interest rate contracts | $ | 7,280 | | | $ | 7,415 | | | $ | 110 | | | $ | 146 | | | $ | — | | | $ | — | | Interest rate contracts | $ | 3,743 | | | $ | 4,972 | | | $ | — | | | $ | 3 | | | $ | (435) | | | $ | (307) | |
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS | DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS | DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS |
Foreign currency interest rate contracts | Foreign currency interest rate contracts | $ | 9,506 | | | $ | 8,484 | | | $ | 248 | | | $ | 89 | | | $ | (19) | | | $ | (94) | | Foreign currency interest rate contracts | $ | 11,877 | | | $ | 7,943 | | | $ | 877 | | | $ | 561 | | | $ | (9) | | | $ | (1) | |
TOTAL DERIVATIVES DESIGNATED AS HEDGING INSTRUMENTS | TOTAL DERIVATIVES DESIGNATED AS HEDGING INSTRUMENTS | $ | 16,786 | | | $ | 15,899 | | | $ | 358 | | | $ | 235 | | | $ | (19) | | | $ | (94) | | TOTAL DERIVATIVES DESIGNATED AS HEDGING INSTRUMENTS | $ | 15,620 | | | $ | 12,915 | | | $ | 877 | | | $ | 564 | | | $ | (444) | | | $ | (308) | |
| DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS | DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS | DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS |
Foreign currency contracts | Foreign currency contracts | $ | 7,058 | | | $ | 5,060 | | | $ | 16 | | | $ | 20 | | | $ | (36) | | | $ | (22) | | Foreign currency contracts | $ | 4,108 | | | $ | 5,625 | | | $ | 4 | | | $ | 6 | | | $ | (96) | | | $ | (61) | |
| TOTAL DERIVATIVES AT FAIR VALUE | TOTAL DERIVATIVES AT FAIR VALUE | $ | 23,844 | | | $ | 20,959 | | | $ | 374 | | | $ | 255 | | | $ | (55) | | | $ | (116) | | TOTAL DERIVATIVES AT FAIR VALUE | $ | 19,728 | | | $ | 18,540 | | | $ | 881 | | | $ | 570 | | | $ | (540) | | | $ | (369) | |
Amounts in millions of dollars unless otherwise specified.
The fair value of the interest rate derivative asset/(liability) directly offsets the cumulative amount of the fair value hedging adjustment included in the carrying amount of the underlying debt obligation. The carrying amount of the underlying debt obligation, which includes the unamortized discount or premium and the fair value adjustment, was $7.4$3.3 billion and $7.5$4.7 billion as of September 30, 20212022 and June 30, 2021,2022, respectively. In addition to the foreign currency derivative contracts designated as net investment hedges, certain of our foreign currency denominated debt instruments are designated as net investment hedges. The carrying value of those debt instruments designated as net investment hedges, which includes the adjustment for the foreign currency transaction gain or loss on those instruments, was $11.7$9.4 billion and $12.0$11.2 billion as of September 30, 20212022 and June 30, 2021,2022, respectively. The increase in the notional balance of derivative instruments designated as net investment hedges is partially offset by the decrease in debt designated as a net investment hedge due to maturities. The net increase in the total amount of instruments designated as net investment hedges is primarily driven by the Company's decision to leverage favorable interest rate spreads in the foreign currency contracts not designated as hedging instruments primarily reflects changes in the level of intercompany financing activity during the period.swap market.
All derivative assets are presented in Prepaid expenses and other current assets or Other noncurrent assets. All derivative liabilities are presented in Accrued and other liabilities or Other noncurrent liabilities. Changes in the fair value of net investment hedges are recognized in the Foreign currency translation component of Other comprehensive income (OCI). All of the Company's derivative assets and liabilities measured at fair value are classified as Level 2 within the fair value hierarchy.
Amounts in millions of dollars unless otherwise specified.
Before tax gains/(losses)gains on our financial instruments in hedging relationships are categorized as follows:
| | | Amount of Gain/(Loss) Recognized in OCI on Derivatives | | Amount of Gain Recognized in OCI on Derivatives |
| | Three Months Ended September 30 | | | Three Months Ended September 30 | |
| | 2021 | | 2020 | | | 2022 | | 2021 | |
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS (1) (2) | DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS (1) (2) | | DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS (1) (2) | |
Foreign exchange contracts | Foreign exchange contracts | $ | 208 | | | $ | (186) | | | Foreign exchange contracts | $ | 708 | | | $ | 208 | | |
(1)For the derivatives in net investment hedging relationships, the amount of gain excluded from effectiveness testing, which was recognized in earnings, was $15$46 and $14$15 for the three months ended September 30, 20212022 and 2020,2021, respectively.
(2)In addition to the foreign currency derivative contracts designated as net investment hedges, certain of our foreign currency denominated debt instruments are designated as net investment hedges. The amount of gain recognized in Accumulated other comprehensive income/(loss)income (AOCI) for such instruments was $303$698 and $(646)$303 for the three months ended September 30, 20212022 and 2020,2021, respectively.
| | | Amount of Gain/(Loss) Recognized in Earnings | | Amount of Loss Recognized in Earnings |
| | Three Months Ended September 30 | | | Three Months Ended September 30 | |
| | 2021 | | 2020 | | | 2022 | | 2021 | |
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS | DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS | | DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS | |
Interest rate contracts | Interest rate contracts | $ | (36) | | | $ | 7 | | | Interest rate contracts | $ | (131) | | | $ | (36) | | |
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS | DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS | | DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS | |
Foreign currency contracts | Foreign currency contracts | $ | (24) | | | $ | 106 | | | Foreign currency contracts | $ | (146) | | | $ | (24) | | |
The gain/(loss)loss on the derivatives in fair value hedging relationships is fully offset by the mark-to-market impact of the related exposure. These are both recognized in the Consolidated Statements of Earnings in Interest expense. The gain/(loss)loss on derivatives not designated as hedging instruments is substantially offset by the currency mark-to-market of the related exposure. These are both recognized in the Consolidated Statements of Earnings in Selling, general and administrative expense (SG&A).
Amounts in millions of dollars unless otherwise specified.
8. Accumulated Other Comprehensive Income/(Loss)
The table below presents the changes in Accumulated other comprehensive income/(loss) attributable to Procter & Gamble (AOCI), including the reclassifications out of AOCI by component: | | | | | | | | | | | | | | | | | | | | | | | |
| Investment Securities | | Post-retirement Benefits | | Foreign Currency Translation | | Total AOCI |
Balance at June 30, 2021 | $ | 15 | | | $ | (2,963) | | | $ | (10,796) | | | $ | (13,744) | |
OCI before reclassifications (1) | 5 | | | 80 | | | (465) | | | (380) | |
Amounts reclassified from AOCI into the Consolidated Statements of Earnings (2) | 0 | | 62 | | | 0 | | 62 | |
Net current period OCI | 5 | | | 142 | | | (465) | | | (318) | |
Less: Other comprehensive income/(loss) attributable to non-controlling interests | — | | | — | | | — | | | — | |
Balance at September 30, 2021 | $ | 20 | | | $ | (2,821) | | | $ | (11,261) | | | $ | (14,062) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Investment Securities | | Post-retirement Benefit Plans | | Foreign Currency Translation | | Total AOCI |
Balance at June 30, 2022 | $ | 20 | | | $ | 27 | | | $ | (12,236) | | | $ | (12,189) | |
OCI before reclassifications (1) | (2) | | | 82 | | | (712) | | | (632) | |
Amounts reclassified to the Consolidated Statement of Earnings (2) | — | | | 5 | | | — | | | 5 | |
Net current period OCI | (2) | | | 87 | | | (712) | | | (627) | |
Less: OCI attributable to non-controlling interests | — | | | — | | | (5) | | | (5) | |
Balance at September 30, 2022 | $ | 18 | | | $ | 114 | | | $ | (12,943) | | | $ | (12,811) | |
(1)Net of tax expense/(benefit)/expense of $1, $29$(1), $9 and $120$330 for gains/losses on investment securities, postretirement benefit itemsplans and foreign currency translation, respectively. Income tax effects within cumulativeforeign currency translation include impacts from items such as net investment hedge transactions. Foreign cumulative translation is not adjusted for income taxes related to permanent investments in international subsidiaries.
(2)Net of tax expense/(benefit)expense of $0, $20$2 and $0 for gains/losses on investment securities, postretirement benefit itemsplans and foreign currency translation, respectively.
The below provides additional details on amounts reclassified from AOCI into the Consolidated Statements of Earnings:
•Investment securities: amounts reclassified from AOCI into Other non-operating income, net.
•Postretirement benefits: amounts reclassified from AOCI into Other non-operating income, net and included in the computation of net periodic postretirement costs.
9. Commitments and Contingencies
Litigation
We are subject, from time to time, to certain legal proceedings and claims arising out of our business, which cover a wide range of matters, including antitrust and trade regulation, product liability, advertising, contracts, environmental, patent and trademark matters, labor and employment matters and tax. While considerable uncertainty exists, in the opinion of management and our counsel, the ultimate resolution of the various lawsuits and claims will not materially affect our financial position, results of operations or cash flows.
We are also subject to contingencies pursuant to environmental laws and regulations that in the future may require us to take action to correct the effects on the environment of prior manufacturing and waste disposal practices. Based on currently available information, we do not believe the ultimate resolution of environmental remediation will materially affect our financial position, results of operations or cash flows.
Income Tax Uncertainties
The Company is present in approximately 70 countries and over 150 taxable jurisdictions and, at any point in time, has 40–50 jurisdictional audits underway at various stages of completion. We evaluate our tax positions and establish liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained, despite our belief that the underlying tax positions are fully supportable. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law and closing of statutes of limitations. Such adjustments are reflected in the tax provision as appropriate. We have tax years open ranging from 20082010 and forward. We are generally not able to reliably estimate the ultimate settlement amounts until the close of an audit. Based on information currently available, we anticipate that over the audit. While we do not expect material changes, it is possible that the amount of unrecognized benefit with respectnext 12 month period, audit activity could be completed related to our uncertain tax positions could increase or decrease within the next 12 months. At this timein multiple jurisdictions for which we are not able to make a reasonable estimatehave accrued existing liabilities of the range of impact on the balance of uncertain tax positions or the impact on the effective tax rate related to these items.approximately $12, including interest and penalties.
Additional information on the Commitments and Contingencies of the Company can be found in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.2022.
Amounts in millions of dollars unless otherwise specified.
| | | | | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
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. Forward-looking statements may appear throughout this report, including without limitation, the following sections: “Management's Discussion and Analysis,” “Risk Factors” and "Notes 4 and 9 to the Consolidated Financial Statements." 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, except to the extent required by law.
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 reduced market growth rates, and to generate sufficient income and cash flow to allow the Company to effect the expected share repurchases and dividend payments; (3) the ability to manage disruptions in credit markets or to our banking partners or changes to our credit rating; (4) the ability to maintain key manufacturing and supply arrangements (including execution of supply chain optimizations and sole supplier and sole manufacturing plant arrangements) and to manage disruption of business due to various factors, including ones outside of our control, such as natural disasters, acts of war (including the Russia-Ukraine War) or terrorism or disease outbreaks; (5) the ability to successfully manage cost fluctuations and pressures, including prices of commodities and raw materials and costs of labor, transportation, energy, pension and healthcare; (6) the ability to stay on the leading edge of innovation, obtain necessary intellectual property protections and successfully respond to changing consumer habits, evolving digital marketing and selling platform requirements and technological advances attained by, and patents granted to, competitors; (7) the ability to compete with our local and global competitors in new and existing sales channels, including by successfully responding to competitive factors such as prices, promotional incentives and trade terms for products; (8) the ability to manage and maintain key customer relationships; (9) the ability to protect our reputation and brand equity by successfully managing
real or perceived issues, including concerns about safety, quality, ingredients, efficacy, packaging content, supply chain practices or similar matters that may arise; (10) the ability to successfully manage the financial, legal, reputational and operational risk associated with third-party relationships, such as our suppliers, contract manufacturers, distributors, contractors and external business partners; (11) the ability to rely on and maintain key company and third partythird-party information and operational technology systems, networks and services and maintain the security and functionality of such systems, networks and services and the data contained therein; (12) the ability to successfully manage uncertainties related to changing political conditions and potential implications such as exchange rate fluctuations and market contraction; (13) the ability to successfully manage current and expanding regulatory and legal requirements and matters (including, without limitation, those laws and regulations involving product liability, product and packaging composition, intellectual property, labor and employment, antitrust, privacy and data protection, tax, environmental,the environment, due diligence, risk oversight, and accounting and financial reporting) and to resolve new and pending matters within current estimates; (14) the ability to manage changes in applicable tax laws and regulations including maintaining our intended tax treatment of divestiture transactions;regulations; (15) the ability to successfully manage our ongoing acquisition, divestiture and joint venture activities, in each case to achieve the Company’s overall business strategy and financial objectives, without impacting the delivery of base business objectives; (16) the ability to successfully achieve productivity improvements and cost savings and manage ongoing organizational changes while successfully identifying, developing and retaining key employees, including in key growth markets where the availability of skilled or experienced employees may be limited; and (17) the ability to successfully manage the demand, supply and operational challenges, as well as governmental responses or mandates, associated with a disease outbreak, including epidemics, pandemics or similar widespread public health concerns (including COVID-19); (18) the COVID-19 outbreak).ability to manage the uncertainties, sanctions and economic effects from the war between Russia and Ukraine; and (19) the ability to successfully achieve our ambition of reducing our greenhouse gas emissions and delivering progress towards our environmental sustainability priorities. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from those projected herein is included in the section titled "Economic Conditions and Uncertainties" and the section titled "Risk Factors" (Part I,II, Item 1A) of this Form 10-Q.
Purpose, Approach and Non-GAAP Measures
The purpose of Management's Discussion and Analysis (MD&A) is to provide an understanding of Procter & Gamble's financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. The
MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and accompanying Notes.
The MD&A is organized into the following sections:
•Overview
•Summary of Results – Three months ended September 30, 20212022
•Economic Conditions and Uncertainties
•Results of Operations – Three months ended September 30, 20212022
•Business Segment Discussion – Three months ended September 30, 20212022
•Liquidity and Capital Resources
•Reconciliation of Measures Not Defined by U.S. GAAP
Throughout the MD&A, we refer to measures used by management to evaluate performance, including unit volume growth, net sales, net earnings, diluted net earnings per share and net earnings.operating cash flow. We also refer to a number of financial measures that are not defined under accounting principles generally accepted in the United States of America (U.S. GAAP), that include organic sales growth,growth, core net earnings per share (Core EPS), adjusted free cash flow and adjusted free cash flow productivity. The explanation at the end of the MD&A provides the definition of these non-GAAP measures, details on the use and the derivation of these measures, as well as reconciliations to the most directly comparable U.S. GAAP measure.
Management also uses certain market share and market consumption estimates to evaluate performance relative to competition, despite some limitations on the availability and comparability of share and consumption information. References to market share and market consumption in the MD&A are based on a combination of vendor purchased traditional brick-and-mortar and online data in key markets as well as internal estimates. All market share references represent the percentage of sales of our products in dollar terms on a constant currency basis relative to all product sales in the category. The Company measures fiscal year to date market shares through the most recent period for which market share data is available, which typically reflects a lag time of one or two months as compared to the end of the reporting period. Management also uses unit volume growth to evaluate and explain drivers of changes in net sales. Organic volume growth reflects year-over-year changes in unit volume excluding the impacts of acquisitions and divestitures and certain one-time items, if applicable, and is used to explain changes in organic sales.
OVERVIEW
P&G is a global leader in the fast-moving consumer goods industry, focused on providing branded consumer packaged goods of superior quality and value to our consumers around the world. Our products are sold in more thanapproximately 180 countries and territories, primarily through mass merchandisers, e-commerce (including social commerce) channels, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, baby stores, specialty beauty stores (including airport duty-free stores), high-frequency stores, pharmacies, electronics stores and professional channels. We also sell direct to individual consumers. We have on-the-ground operations in approximately 70 countries.
Our market environment is highly competitive with global, regional and local competitors. In many of the markets and industry segments in which we sell our products, we compete against other branded products as well as retailers' private-label brands. Additionally, many of the product segments in which we compete are differentiated by price tiers (referred to as super-premium, premium, mid-tier and value-tier products). We believe we are well positioned in the industry segments and markets in which we operate, often holding a leadership or significant market share position.
The table below lists our reportable segments, including the product categories and brand composition within each segment. | | | | | | | | |
Reportable Segments | Product Categories (Sub-Categories) | Major Brands |
Beauty | Hair Care (Conditioners, Shampoos, Styling Aids, Treatments) | Head & Shoulders, Herbal Essences, Pantene, Rejoice |
Skin and Personal Care (Antiperspirants and Deodorants, Personal Cleansing, Skin Care) | Olay, Old Spice, Safeguard, Secret, SK-II |
Grooming | Grooming (1) | (Shave Care - Grooming (Appliances, Female Blades & Razors, Male Blades & Razors, Pre- and Post-Shave Products, Other Shave Care; GroomingAppliances))
| Braun, Gillette, Venus |
Health Care | Oral Care (Toothbrushes, Toothpastes, Other Oral Care) | Crest, Oral-B |
Personal Health Care (Gastrointestinal, Pain Relief, Rapid Diagnostics, Respiratory, Vitamins/Minerals/Supplements, Pain Relief, Other Personal Health Care) | Metamucil, Neurobion, Pepto-Bismol, Vicks |
Fabric & Home Care | Fabric Care (Fabric Enhancers, Laundry Additives, Laundry Detergents) | Ariel, Downy, Gain, Tide |
Home Care (Air Care, Dish Care, P&G Professional, Surface Care) | Cascade, Dawn, Fairy, Febreze, Mr. Clean, Swiffer |
Baby, Feminine & Family Care | Baby Care (Baby Wipes, Taped Diapers and Pants) | Luvs, Pampers |
Feminine Care (Adult Incontinence, Feminine Care) | Always, Always Discreet, Tampax |
Family Care (Paper Towels, Tissues, Toilet Paper) | Bounty, Charmin, Puffs |
(1)TheEffective July 1, 2022, the Grooming product category is comprisedSector Business Unit completed the full integration of theits Shave Care and Appliances operating segments.
categories to cohesively serve consumers' grooming needs. This transition included the integration of the management team, strategic decision-making, innovation plans, financial targets, budgets and internal management reporting.
The following table provides the percentage of net sales and net earnings by reportable business segment (excluding Corporate) for the three months ended September 30, 2021 (excluding net sales and net earnings in Corporate):2022:
| | | Three Months Ended September 30, 2021 | | | Three Months Ended September 30, 2022 | |
| | Net Sales | | Net Earnings | | | Net Sales | | Net Earnings | |
Beauty | Beauty | 20% | | 25% | | Beauty | 19% | | 25% | |
Grooming | Grooming | 8% | | 11% | | Grooming | 8% | | 10% | |
Health Care | Health Care | 13% | | 13% | | Health Care | 14% | | 16% | |
Fabric & Home Care | Fabric & Home Care | 35% | | 30% | | Fabric & Home Care | 35% | | 29% | |
Baby, Feminine & Family Care | Baby, Feminine & Family Care | 24% | | 21% | | Baby, Feminine & Family Care | 24% | | 20% | |
Total Company | Total Company | 100% | | 100% | | Total Company | 100% | | 100% | |
SUMMARY OF RESULTS
The following are highlights of results for the three months ended September 30, 20212022 versus the three months ended September 30, 2020:2021:
•Net sales increased 5%1% to $20.3 billion, due to a high single digit increase$20.6 billion. Growth was driven by low single-digit increases in Health Care, mid-single digit increases in Beauty, Grooming and Fabric & Home Care and a low single digit increase in Baby, Feminine & Family Care.Care, partially offset by a mid-single-digit decrease in Grooming. Net Sales in Beauty were unchanged. Organic sales, which exclude the impacts of acquisitions and divestitures and foreign exchange, increased 4%7%. Organic sales increased high single digits in Health Care increased mid-single digits in Grooming and in Fabric & Home Care and increased low singlemid-single digits in Beauty, Grooming and in Baby, Feminine & Family Care.
•Net earnings were $4.1$4.0 billion, a decrease of $0.2 billion$163 million, or 4%, versus the prior year period asdue to a decrease in operating margin, partially offset by the increase in net sales was more than offset by a decrease in operating margin.sales.
•Net earnings attributable to Procter & Gamble decreased $0.2were $3.9 billion, a decrease of $173 million, or 4%, versus the prior year period to $4.1 billion.year.
•Diluted net earnings per share (EPS) decreased 1%2% to $1.61$1.57 due primarily to the decrease in net earnings, partially offset by a reduction in the weighted average shares outstanding. Core net earnings per share also decreased 1% to $1.61 due to the absence of any non-core adjustments in either period.
•Operating cash flow was $4.6$4.1 billion. Adjusted free cash flow, which is operating cash flow less capital expenditures and certain other impacts, was $3.8$3.4 billion. Adjusted free cash flow productivity was 92%86%.
ECONOMIC CONDITIONS AND UNCERTAINTIES
Global Economic Conditions. Our products are sold in numerous countries across North America, Europe, Latin America, Asia and Africa, with more than half our sales generated outside the United States. As such, we are exposed to and impacted by global macroeconomic factors, U.S. and foreign government policies and foreign exchange fluctuations. Global economic conditions continue to be highly volatile due to the COVID-19 pandemic, resulting in market size contractions in certain countries due to economic slowdowns and government restrictions on movement. OtherCurrent macroeconomic factors also remain very dynamic, and any causes of market size contraction, such as COVID-19 related disruptions or lockdowns, greater political unrest or instability in the Middle East, Central &and Eastern Europe (including the ongoing Russia-Ukraine War), certain Latin American markets the Hong Kong market in Greater China and the Korean peninsula could reduce our sales or erode our operating margin and consequently reduce our net earnings and cash flows.
Changes in Costs. Our costs are subject to fluctuations, particularly due to changes in commodity and input material prices, transportation costs, broader inflationary impacts and our own productivity efforts. We have significant exposures to certain commodities and input materials, in particular certain oil-derived materials like resins and paper-based materials like pulp, and volatilitypulp.Volatility in the market price of these commoditycommodities and input materials has a direct impact on our costs.Disruptions in our manufacturing, supply and distribution operations, including due to COVID-19 related lockdowns, energy shortages, port congestions, labor constraints and freight container and truck shortages have impacted our costs and could do so in the future.If we are unable to manage these impacts through pricing actions, cost savings projects and sourcing decisions, as well as through consistent productivity improvements, it may adversely impact our gross margin, operating margin, net earnings and cash flows. Net sales could also be adversely impacted following pricing actions if there is a negative impact on the consumption of our products. We strive to implement, achieve and sustain cost improvement plans, including outsourcing projects, supply chain optimization and general overhead and workforce optimization.If we are not successful in executing and sustaining these changes, there could be a negative impact on our gross margin, operating margin, net earnings and cash flows.
Foreign Exchange. We have both translation and transaction exposure to the fluctuation of exchange rates. Translation exposures relate to exchange rate impacts of measuring income statements of foreign subsidiaries that do not use the U.S. dollar as their functional currency. Transaction exposures relate to 1) the impact from input costs that are denominated in a currency other than the local reporting currency and 2) the revaluation of transaction-related working capital balances denominated in currencies other than the functional currency. In three outHistorically, weakening of the past four years a number ofcertain foreign currencies have weakened versus the U.S. dollar have resulted in significant foreign exchange impacts leading to lower net sales, net earnings and earnings from these foreign exchange impacts.cash flows. Certain countries that recently had and are currently experiencing significant exchange rate fluctuations includesuch as Argentina, Brazil, United Kingdom, Japan, Russia and Turkey Brazilhave had, and Russia. These fluctuationscould continue to have, significantly impacteda significant impact on our historical net sales, costs and net earnings and could do so in the future.cash flows. Increased pricing in response to certain fluctuations in foreign currency exchange rates may offset portions of the currency impacts but could also have a negative impact on the consumption of our products, which would negatively affect our net sales, gross margin, operating margin, net earnings and cash flows.
Government Policies. Our net earnings and cash flows could be affected by changes in U.S. or foreign government legislative, regulatory or enforcement policies. For example, ourOn August 16, 2022, the "Inflation Reduction Act" (H.R. 5376) was signed into law in the United States. We do not currently expect the Inflation Reduction Act to have a material impact on the Company's Consolidated Financial Statements. Our net earnings and cash flows could be affected by any future legislative or regulatory changes in U.S. or non-U.S. tax policy, or any significant change in global tax policy adopted under the current work being led by the Organisation for Economic Co-operation and Development ("OECD")OECD for the G20 focused on "Addressing the Challenges of the Digitalization of the Economy." The breadth of the OECD project extends beyond pure digital businesses and if agreed and enacted by most countries is likely to impact most large multinational businesses by both redefining jurisdictional taxation rights and broadly establishing a 15% minimum tax on their foreign operations.Economy". Our net sales, gross margin,
operating margin, net earnings and cash flows may also be impacted by changes in U.S. and foreign government policies related to environmental and climate change matters. Additionally, we attempt to carefully manage our debt, currency and other
exposures in certain countries with currency exchange, import authorization and pricing controls, such as Argentina, Egypt, Nigeria Algeria, Egypt, Argentina and Turkey.Pakistan. Further, our net sales, gross margin, operating margin, net earnings and cash flows could be affected by changes to international trade agreements in North America and elsewhere, including any impacts from post-Brexit (United Kingdom’s exit from the European Union) trade agreements.elsewhere. Changes in government policies in these areas might cause an increase or decrease in our net sales, gross margin, operating margin, net earnings and cash flows.
COVID-19 Disclosures.Russia-Ukraine War. The war between Russia and Ukraine has negatively impacted our operations in both countries. Our priorities during the COVID-19 pandemic continue to beUkraine business includes two manufacturing sites. We have approximately 500 employees including both manufacturing and non-manufacturing personnel. Our operations in protecting the health and safetyUkraine accounted for less than 1% of our employees; maximizing the availability of products that help consumers with their health, hygiene and cleaning needs; and using our employees’ talents and our resources to help society meet and overcome the current challenges.
Because we sell products that are essential to the daily lives of consumers, the pandemic has not had a materially negative impact to our consolidated net sales and net earnings in fiscal 2022. Additionally, net assets of our Ukraine subsidiary, along with Ukraine related assets held by other subsidiaries, account for less than 1% of net assets as positiveof September 30, 2022.
Our Russia business includes two manufacturing sites with a net book value of approximately $300 million as of September 30, 2022. We have approximately 1,800 employees, including both manufacturing and negativenon-manufacturing personnel. In fiscal 2022, our operations in Russia accounted for less than 2% of consolidated net sales and less than 1% of net earnings. Additionally, net assets of our Russia subsidiaries, along with Russia related assets held by other subsidiaries, account for less than 2% of net assets as of September 30, 2022. Beginning in March 2022, the Company reduced its product portfolio, discontinued new capital investments and suspended media, advertising and promotional activity in Russia.
Future impacts to the Company are difficult to predict due to the high level of uncertainty related to the war’s duration, evolution and resolution. Within Ukraine, there is a possibility of physical damage and destruction of our two manufacturing facilities. We may not be able to operate our manufacturing sites and source raw materials from our suppliers or ship finished products to our customers. Ultimately, these could result in impairments of our manufacturing plants and fixed assets or write-downs of other operating assets and working capital.
Within Russia, we may not be able to continue our reduced operations at current levels due to largely offset each other. We further describe these impacts for the period covered by this report in the Business Segment Discussion of the MD&A.
In the future, the pandemic may reduce demand for our products if it results in a recessionary global economic environment. Demand in certain countries in Latin America, Asia Pacificsanctions and IMEA may be particularly susceptible to recession. It could also lead to volatility in consumercounter-sanctions, monetary, currency or payment controls, legislative restrictions or policies, restrictions on access to our products (due to government actions orfinancial institutions and supply and transportation challenges. Our suppliers, distributors and labor shortages impacting our ability to produce and ship products) or could impact consumers’ movements and access to our products. The resumption towards normalcy in economic activity as governmental restrictions are relaxed and economies gradually, partially, or fully reopen in certain regions and markets, could also result in reduced demand due to consumption decreases and consumer pantry destocking (particularly, in home cleaning and hygiene products). Our retail customers are also impacted by the pandemicwar and their success in addressing issues and maintainingability to successfully maintain their operations could also impact consumer access to and, as a result,our operations or negatively impact the sales of our products.
We believe that in the long term,More broadly, there will continuecould be additional negative impacts to be strong demand for categories in which we operate, particularly our products that deliver essential health, hygiene and cleaning benefits. However, the uncertainty in the timing and extent of demand volatility, the relaxation and reimplementation of movement restrictions, the timing and impact of potential consumer pantry destocking, and future economic trends due to a resurgence of positive cases, the emergence of new variants of the virus, the speed at which treatments and vaccines are administered and governmental actions in response to the pandemic may result in heightened volatility of net sales, net earnings and cash flows duringshould the situation escalate beyond its current scope, including, among other potential impacts, economic recessions in certain neighboring countries or globally due to inflationary pressures and subsequentsupply chain cost increases or the geographic proximity of the war relative to the pandemic.rest of Europe.
Business Continuity. Our ability to continue to operate without any significant negative impacts will in part depend on our ability to protect our employees and our supply chain. The Company has endeavored to followFor a more complete discussion of the recommendations from governments and health authorities, including on vaccine administration, with specific measures in place for those workingrisks we encounter in our plants and distribution facilities. We have also worked closely with local and national officials to keep our manufacturing facilities open due to the essential nature of the majority of our products.
While we have been able to broadly maintain our operations, we experienced some disruption in our supply chain in certain markets in Asia Pacific due primarily to the restriction of employee movements and in North America due to labor shortages and transportation constraints. We intend to continue to work with government authorities and implement employee safety measures to minimize disruption to the manufacturing and distribution of our products. However, uncertainty in the duration and scope of the pandemic, the emergence of new variants of the virus, the likelihood of a resurgence of positive cases, the speed at which treatments and vaccines are administered and governmental actions in response to the pandemic could result in an unforeseen disruption to our supply chain and impact our operations. For example, a closure of a key manufacturing or distribution facility or the inability of a key material or transportation supplier to source and transport materials.
Liquidity. Because the pandemic, thus far, has not had a material negative impact on our operations, on the demand for our products or the resulting net sales and net earnings, it has not negatively impacted the Company’s liquidity position. We continue to generate operating cash flows to meet our short-term liquidity needs and continue to maintain access to capital markets enabled by our strong short- and long-term credit ratings.
Impairments. We have not observed any material impairments or other significant reductions in the fair value of our recorded assets due to the COVID-19 pandemic.
For additional information on risk factors that could impact our results,business, please refer to “Risk Factors”Risk Factors in Part I, Item 1A of the Company's Form 10-K for the fiscal year ended June 30, 2021.
2022.
RESULTS OF OPERATIONS – Three Months Ended September 30, 20212022
The following discussion provides a review of results for the three months ended September 30, 20212022 versus the three months ended September 30, 2020.2021.
| | | Three Months Ended September 30 | | Three Months Ended September 30 |
Amounts in millions, except per share amounts | Amounts in millions, except per share amounts | 2021 | | 2020 | | % Chg | Amounts in millions, except per share amounts | 2022 | | 2021 | | % Chg |
Net sales | Net sales | $20,338 | | $19,318 | | 5% | Net sales | $20,612 | | $20,338 | | 1% |
Operating income | Operating income | 5,023 | | 5,281 | | (5)% | Operating income | 4,939 | | 5,023 | | (2)% |
Net earnings | Net earnings | 4,126 | | 4,308 | | (4)% | Net earnings | 3,963 | | 4,126 | | (4)% |
Net earnings attributable to Procter & Gamble | Net earnings attributable to Procter & Gamble | 4,112 | | 4,277 | | (4)% | Net earnings attributable to Procter & Gamble | 3,939 | | 4,112 | | (4)% |
Diluted net earnings per common share | Diluted net earnings per common share | 1.61 | | 1.63 | | (1)% | Diluted net earnings per common share | 1.57 | | 1.61 | | (2)% |
Core net earnings per common share | 1.61 | | 1.63 | | (1)% | |
| | | | Three Months Ended September 30 | | Three Months Ended September 30 |
COMPARISONS AS A PERCENTAGE OF NET SALES | COMPARISONS AS A PERCENTAGE OF NET SALES | 2021 | | 2020 | | Basis Pt Chg | COMPARISONS AS A PERCENTAGE OF NET SALES | 2022 | | 2021 | | Basis Pt Chg |
Gross margin | Gross margin | 49.0% | | 52.7% | | (370) | Gross margin | 47.4% | | 49.0% | | (160) |
Selling, general & administrative expense | Selling, general & administrative expense | 24.3% | | 25.3% | | (100) | Selling, general & administrative expense | 23.4% | | 24.3% | | (90) |
Operating income | Operating income | 24.7% | | 27.3% | | (260) | Operating income | 24.0% | | 24.7% | | (70) |
Earnings before income taxes | Earnings before income taxes | 24.8% | | 27.4% | | (260) | Earnings before income taxes | 24.2% | | 24.8% | | (60) |
Net earnings | Net earnings | 20.3% | | 22.3% | | (200) | Net earnings | 19.2% | | 20.3% | | (110) |
Net earnings attributable to Procter & Gamble | Net earnings attributable to Procter & Gamble | 20.2% | | 22.1% | | (190) | Net earnings attributable to Procter & Gamble | 19.1% | | 20.2% | | (110) |
Net Sales
Net sales for the quarter increased 5%1% to $20.3 billion on a 2%$20.6 billion. The increase in unit volume. Higher pricing increased net sales was due to higher pricing of 9% and favorable mix of 1%, partially offset by 1%unfavorable foreign exchange of 6% and a decrease in unit volume of 3%. PositiveFavorable mix increased net sales by 1%,was driven by the disproportionate growth of the North America region, theSkin & Personal Care and Personal Health Care business and premium products in Shave Care, Baby Care and Feminine Care, allbusinesses (both of which have higher than Company-average selling prices. Favorable foreign exchange had a 1% positive impact on net sales. Excluding the impact of acquisitions and divestitures and foreign exchange, organicprices). Organic sales increased 4%7% on a 2% increase3% decrease in organic volume.
Net salesSales increased highlow single digits in Health Care, increased mid-single digits in Beauty, Grooming and Fabric & Home Care and increased low single digits in Baby, Feminine & Family Care.Care and decreased mid-single digits in Grooming. Net Sales in Beauty were unchanged. On a regional basis, volume increased mid-singledecreased high single digits in Latin AmericaEurope and decreased low single digits in North America and Europe,Greater China. These volume decreases were partially offset by a high single-digit increase in Latin America and low single digit decreasessingle-digit increases in Greater China, Asia Pacific and IMEA.
| | | Net Sales Change Drivers 2021 vs. 2020 (Three Months Ended September 30, 2021) (1) | | Net Sales Change Drivers 2022 vs. 2021 (Three Months Ended September 30, 2022) (1) |
| | Volume with Acquisitions & Divestitures | | Volume Excluding Acquisitions & Divestitures | | Foreign Exchange | | Price | | Mix | | Other (2) | | Net Sales Growth | | Volume with Acquisitions & Divestitures | | Volume Excluding Acquisitions & Divestitures | | Foreign Exchange | | Price | | Mix | | Other (2) | | Net Sales Growth |
Beauty | Beauty | —% | | —% | | 3% | | 2% | | —% | | —% | | 5% | Beauty | (1)% | | (1)% | | (6)% | | 7% | | (2)% | | 2% | | —% |
Grooming | Grooming | 1% | | 1% | | 1% | | 2% | | 2% | | (1)% | | 5% | Grooming | —% | | 1% | | (8)% | | 8% | | (4)% | | —% | | (4)% |
Health Care | Health Care | 3% | | 3% | | 1% | | 1% | | 3% | | —% | | 8% | Health Care | (2)% | | (2)% | | (5)% | | 6% | | 4% | | —% | | 3% |
Fabric & Home Care | Fabric & Home Care | 2% | | 2% | | 1% | | 2% | | 1% | | (1)% | | 5% | Fabric & Home Care | (4)% | | (4)% | | (6)% | | 11% | | 1% | | (1)% | | 1% |
Baby, Feminine & Family Care | Baby, Feminine & Family Care | 1% | | 1% | | 1% | | (1)% | | 2% | | —% | | 3% | Baby, Feminine & Family Care | (3)% | | (3)% | | (5)% | | 8% | | 1% | | —% | | 1% |
Total Company | Total Company | 2% | | 2% | | 1% | | 1% | | 1% | | —% | | 5% | Total Company | (3)% | | (3)% | | (6)% | | 9% | | 1% | | —% | | 1% |
(1)Net sales percentage changes are approximations based on quantitative formulas that are consistently applied.
(2)Other includes the sales mix impact from acquisitions and divestitures and rounding impacts necessary to reconcile volume to net sales.
Operating Costs
Gross margin decreased 370160 basis points to 49%47.4% of net sales for the quarter. The decrease in gross margin was due to:
•350510 basis points of increased commodity costs,
•an 80 basis point decline from unfavorable mix, primarily due to negative product mix due to the disproportionate growth of large pack sizes, launch and growth of premium-priced products that are profit-accretive but have lower than Company-average gross margin and higher volumes of lower-margin display packs in certain regions and businesses, andinput material costs,
•a 40 basis point120 basis-point decline from unfavorable product mix, primarily due to the disproportionate slowdown of SK-II, Appliances and Fabric Enhancers products, all of which have higher restructuring charges versus the base period.than company-average gross margins,
These impacts were offset by:
•a 5040 basis point increase due to higher pricing,points of increased transportation costs,
•30 basis points of net manufacturing productivity savings (100 basis points of gross savings, partially offset by 50 basis points of increased transportation impacts and 20 basis points of product and packaging investments, and other impacts),
•a 30 basis-point decline from unfavorable foreign exchange impacts and
•20a 10 basis-point decline from decreased cost leverage.
These impacts were partially offset by
•a 470 basis-point increase due to higher pricing and
•110 basis points of benefit from favorable foreign exchange impacts.manufacturing productivity savings.
Total SG&A spending increased 1%decreased 2% to $5.0$4.8 billion due to increaseddecreased marketing spending partially offset by a decrease inincreased overhead costs and other operating costs. SG&A as a percentage of net sales decreased 10090 basis points to 24.3%23.4% due primarily to a decrease in marketing spending as a percentage of sales, partially offset by an increase in overhead and other operating costs as a percentage of net sales and a decrease in other operating expenses as a percentage of sales. Overhead costsMarketing spending as a percentage of net sales decreased 50200 basis points primarily due to the positive scale impacts of the net sales increase, increased savings in promotion-related and productivity savings, partially offset by inflationagency costs and other cost increases. Other operating expenseslower media spending. Overhead costs as a percentage of net sales decreased 60increased 30 basis points due to a gain on the sale of operating real estate. Marketing spending as a percentage of net sales remained flat due to increased media spending,inflation and other cost increases, partially offset by the positive scale impacts of the net sales increaseincrease. Other operating expenses as a percentage of net sales increased 80 basis points due to a prior period gain on the sale of real estate and savings in agency compensation, production costs and advertising spending.higher foreign exchange transactional charges. Productivity-driven cost savings delivered 80120 basis points of benefit to SG&A as a percentage of net sales.
Non-Operating Expenses and Income
Interest expense was $109$123 million for the quarter, a $27 million decrease versus the prior year period driven by lower average interest rates. Interest income was $11 million for the quarter, a $1$14 million increase versus the prior year period. Interest income was $42 million for the quarter, a $31 million increase versus the prior year period due to higher interest rates. Other non-operating income was $110$139 million, a decreasean increase of $32$29 million primarily due to currenta prior period unrealized lossesloss on equity investments.
Income Taxes
For the three months ended September 30, 2021,2022, the effective tax rate decreased 60increased 260 basis points versus the prior year period to 18.1%20.7% due to:
•a 130 basis-point increase from lower excess tax benefits of share-based compensation (a 60 basis point decreasebasis-point benefit in the current period versus a 190 basis-point benefit in the prior year period),
•a 70 basis-point increase from discrete impacts related to uncertain tax positions (55 basis point favorable(a 20 basis-point unfavorable impact in the current yearperiod versus a 5 basis point unfavorable50 basis-point favorable impact in the prior year period), and
•a 60 basis point decreasebasis-point increase from favorableunfavorable impacts from the geographic mix of current year earnings.
These decreases are partially offset by a 60 basis point increase from lower excess tax benefits of share-based compensation (190 basis point reduction in the current period versus a 250 basis point reduction in the prior year period).
Net Earnings
Operating income decreased $258$84 million, or 5%2%, to $5.0$4.9 billion for the quarter, as the increase in net sales was more than fully offset by the decrease in operating margin, the components of which are described above. Net earnings decreased $182$163 million, or 4%, to $4.1$4.0 billion as the decreasesdecrease in operating income and other non-operating income discussed abovean increase in effective tax rate were partially offset by the decreasean increase in the effective income tax rate.other non-operating income. Foreign exchange had a positivenegative impact of approximately $61$381 million on net earnings for the quarter, including both transactional and translational impacts from converting earnings from foreign subsidiaries to U.S. dollars. Net earnings attributable to Procter & Gamble decreased $165$173 million, or 4%, to $4.1$3.9 billion for the quarter. Diluted net earnings per share decreased 1%2% to $1.61$1.57 versus the baseprior year period due to the decrease in net earnings, partially offset by a reduction in the weighted average number of shares outstanding.
BUSINESS SEGMENT DISCUSSION – Three Months Ended September 30, 20212022
The following discussion provides a review of results by reportable business segment. Analysis of the results for the three month period ended September 30, 20212022 is provided based on a comparison to the three month period ended September 30, 2020.2021. The primary financial measures used to evaluate segment performance are net sales and net earnings. The table below provides supplemental information on net sales, earnings before income taxes and net earnings by reportable business segment for the three months ended September 30, 20212022 versus the comparable prior year period (dollar amounts in millions):
| | | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2022 |
| | Net Sales | | % Change Versus Year Ago | | Earnings/(Loss) Before Income Taxes | | % Change Versus Year Ago | | Net Earnings | | % Change Versus Year Ago | | Net Sales | | % Change Versus Year Ago | | Earnings/(Loss) Before Income Taxes | | % Change Versus Year Ago | | Net Earnings/(Loss) | | % Change Versus Year Ago |
Beauty | Beauty | $ | 3,964 | | | 5 | % | | $ | 1,242 | | | 1 | % | | $ | 991 | | | 2 | % | Beauty | $ | 3,961 | | | — | % | | $ | 1,271 | | | 2 | % | | $ | 1,011 | | | 2 | % |
Grooming | Grooming | 1,687 | | | 5 | % | | 518 | | | 22 | % | | 417 | | | 17 | % | Grooming | 1,625 | | | (4) | % | | 503 | | | (3) | % | | 404 | | | (3) | % |
Health Care | Health Care | 2,676 | | | 8 | % | | 695 | | | 2 | % | | 529 | | | 1 | % | Health Care | 2,757 | | | 3 | % | | 800 | | | 15 | % | | 617 | | | 17 | % |
Fabric & Home Care | Fabric & Home Care | 7,009 | | | 5 | % | | 1,546 | | | (11) | % | | 1,191 | | | (12) | % | Fabric & Home Care | 7,082 | | | 1 | % | | 1,543 | | | — | % | | 1,172 | | | (2) | % |
Baby, Feminine & Family Care | Baby, Feminine & Family Care | 4,864 | | | 3 | % | | 1,075 | | | (18) | % | | 826 | | | (18) | % | Baby, Feminine & Family Care | 4,934 | | | 1 | % | | 1,055 | | | (2) | % | | 805 | | | (3) | % |
Corporate | Corporate | 138 | | | N/A | | (41) | | | N/A | | 172 | | | N/A | Corporate | 253 | | | N/A | | (175) | | | N/A | | (46) | | | N/A |
Total Company | Total Company | $ | 20,338 | | | 5 | % | | $ | 5,035 | | | (5) | % | | $ | 4,126 | | | (4) | % | Total Company | $ | 20,612 | | | 1 | % | | $ | 4,997 | | | (1) | % | | $ | 3,963 | | | (4) | % |
Beauty
Three months ended September 30, 20212022 compared with three months ended September 30, 20202021
Beauty net sales increased 5% towere unchanged at $4.0 billion, onas the positive impact from higher pricing of 7% and from acquisitions of 2% was fully offset by unfavorable foreign exchange of 6%, unfavorable mix of 2% (due primarily to the decline of SK-II brand, which has higher than segment-average selling prices) and a decrease in unit volume that was unchanged. Higher pricing increased net sales by 2%of 1%. ForeignExcluding the impact of acquisitions and foreign exchange, impacts increased net sales by 3%. Organicorganic sales increased 2%4%. Global market share of the Beauty segment increased 0.10.5 points.
•Hair Care net sales increased mid-single digits on flat volume due to inflation-related price increases, favorable foreign exchange impacts and favorable mix driven by the higher proportion of sales of premium tier products including treatments and conditioners, all of which have higher than category-average selling prices. Organic sales increaseddecreased low single digits. Volume increased mid-single digitsNegative impacts of a decrease in IMEA (due to increased demand following pandemic-related shutdowns)unit volume and low single digitsunfavorable foreign exchange were partially offset by higher pricing (in all regions). The volume decrease was driven primarily by declines in Europe (due to innovationportfolio reduction in Russia), Greater China (related to market contraction) and North America (due to market recovery, partially offsetcontraction and increased pricing). Organic sales increased mid-single digits driven by declines following increased pricinga double-digit growth in certain markets). This volume increase wasLatin America and Europe, a high single-digit growth in IMEA and a mid-single-digit growth in North America, partially offset by a mid-single digitmid-single-digit decline in Greater China (due to trade inventory reductions and to a lesser extent, a slowdown in e-commerce consumption) and a low single digit decline in Latin America (due to increased pricing).China. Global market share of the Hair Care category decreased more than half a point.
•Skin and Personal Care net sales increased mid-single digits due to a low single digitdigits. Positive impacts of a volume increase, in volume, increasedhigher pricing and favorable foreign exchange impacts,a benefit from acquisitions were partially offset by negative geographicunfavorable foreign exchange and unfavorable mix caused(due to the decline of SK-II brand, which has higher than category-average selling prices). Volume increase was primarily driven by pandemic-related shutdowns. Organic sales increased low single digits. Volume increased high teensgrowth in LatinNorth America (due to pandemic-related consumption declines in the base period)innovation) and increased double digitsLatin America, partially offset by a decline in Greater China (due to new innovation, e-commerce growthpandemic-related lockdowns) and customer inventory build-up). This volumeAsia Pacific. Organic sales increased mid-single digits as a mid-teens increase in North America
was partially offset by a high single digitlow single-digit decrease in Asia Pacific (due to pandemic-related consumption increases in the base period and inventory destocking) and mid-single digit decreases in Europe and in North America (due to pandemic-related consumption increases in the base period and to a lesser extent, current period port congestion related supply constraints).Greater China. Global market share of the Skin and Personal Care category increased lessmore than half a point.
Net earnings increased 2% to $991 million due to the increase in net sales partially offset by an 80 basis point decrease in net earnings margin. The net earnings margin decreased primarily$1.0 billion due to a reduction in gross margin driven by increased commodity costs and negative geographic mix due to pandemic-related shutdowns, partially offset by the positive impacts of increased pricing, favorable foreign exchange and manufacturing cost savings. SG&A as a percentage of net sales increased marginally due to an increase in media spending.
Grooming
Three months ended September 30, 2021 compared with threemonths ended September 30, 2020
Grooming net sales increased 5% to $1.7 billion on a 1% increase in unit volume. Increased pricing had a positive 2% impact on net sales. Favorable mix had a positive 2% impact on net sales due to growth in North America and premium shave care products, both of which have higher than segment-average selling prices. Foreign exchange increased net sales by 1%. Organic sales increased 4%. Global market share of the Grooming segment increased 1.1 points.
•Shave Care net sales increased high single digits due to a low single digit volume increase, increased pricing, favorable mix (due to growth in North America and the disproportionate growth of premium female shave systems products, both of which have higher than category-average selling prices) and favorable foreign exchange impacts. Organic sales increased mid-single digits. Volume increased double digits in North America, mid-single digits in Latin America and low single
digits in Europe due to innovation and market size increases versus a base period that was negatively impacted by the pandemic. This was partially offset by a high single digit decrease in Asia Pacific and mid-single digit declines in Greater China and in IMEA due to trade destocking in certain markets and lower consumer promotions. Global market share of the Shave Care category increased more than half a point.
•Appliances net sales decreased low single digits primarily due to a double digit volume decrease, partially offset by favorable mix (due to the disproportionate growth of premium female epilators and shavers) and favorable foreign exchange impacts. Organic sales decreased mid-single digits. Volume declined about 20% in North America and decreased double digits in Europe due to a pandemic-related consumption increase of at-home grooming and styling products in the base period. Global market share of the Appliances category increased more than half a point.
Net earnings increased 17% to $417 million due to the increase in net sales and a 25050 basis-point increase in net earnings margin. The netNet earnings margin increased due to an increase in gross margin and a reduction in SG&A as a percentage of net sales, partially offset by a higher effective tax rate.decrease in gross margin. The gross margin increasereduction was driven by manufacturing cost savingsincreased commodity and increased selling prices,input material costs, transportation costs and negative product mix due to the decline of the super-premium SK-II brand, partially offset by negative mix driven by the launch of premium-priced, profit-accretive products that have lower than segment-average gross margins.increased pricing. SG&A as a percentage of net sales decreased primarily due to a decrease in marketing spending.
Grooming
Three months ended September 30, 2022 compared with threemonths ended September 30, 2021
Grooming net sales decreased 4% to $1.6 billion driven by unfavorable foreign exchange of 8% and unfavorable mix of 4% (due to decline of Appliances, which have higher than segment-average selling prices), partially offset by higher pricing of 8% (driven by Europe, North America, Latin America and Asia Pacific). Unit volume was unchanged as increases in Asia Pacific, Europe and IMEA were fully offset by a decline in North America (as a result of increased pricing) and a minor divestiture. Grooming organic sales increased 5% on a 1% increase in organic volume. Organic sales increased more than 20% in Asia Pacific, high teens in Latin America, mid-teens in IMEA and low single digits in Europe. This was partially offset by a low single-digit decline in North America. Global market share of the positiveGrooming segment increased 0.7 points.
Net earnings decreased 3% to $404 million due to the decrease in net sales. Net earnings margin was unchanged as a decrease in SG&A as a percentage of net sales was mostly offset by a higher effective tax rate. The gross margin remained unchanged as increases due to higher pricing and manufacturing cost savings were fully offset by decreases due to commodity and input material cost increases, unfavorable foreign exchange and negative geographic mix caused by the disproportionate volume growth of Latin America and Asia Pacific (which have lower than segment-average gross margins). SG&A as a percentage of net sales decreased as increased efficiencies in marketing spending were partially offset by the negative scale impacts of the net sales increase.decrease. The higher effective tax rate was driven by disproportionate growtha higher proportion of net sales in North America.America, which has higher than Company-average tax rates.
Health Care
Three months ended September 30, 20212022 compared with three months ended September 30, 20202021
Health Care net sales increased 8%3% to $2.7$2.8 billion on a 3% increasedriven by higher pricing of 6% and favorable mix of 4% (due to volume growth in unit volume. Favorable mix increased net sales by 3% due to the disproportionate growth of the North America region and the Personal Health Care category, both of which have higher than segment averagesegment-average selling prices. Increased pricing hadprices), partially offset by unfavorable foreign exchange of 5% and a 1% positive impact on net sales. Foreign exchange had a 1% positive impact on net sales.decrease in unit volume of 2%. Organic sales increased 7%8%. Global market share of the Health Care segment increased 0.2decreased 0.7 points.
•Oral Care net sales increased mid-single digits as adecreased low single digit decrease indigits. Negative impacts of a volume was more thandecline and unfavorable foreign exchange were partially offset by positiveincreased pricing and favorable product mix impacts from(driven by the growth of premium power brush toothpaste and manual brushpremium paste products, both of which have higher than category-average selling prices). Volume decline was primarily driven by North America (due to market contraction and favorable foreign exchange impacts.increased pricing), Europe (due to portfolio reduction in Russia and increased pricing), Greater China (due to market contraction) and IMEA, partially offset by growth in Latin America. Organic sales increased low single digits. The volume decrease wasdigits driven by a mid-teens decline in Greater China and a mid-single digit declinean increase of about 20% in Latin America both due to increased competitive activity, and a low single digit declinedigits in Europe due to lower shipments. These volume decreases wereNorth America, partially offset by a double digit increaselow single-digit decreases in IMEAEurope and a low single digit increase in North America both due to innovation.Greater China. Global market share of the Oral Care category increased nearly a point.decreased slightly.
•Personal Health Care net sales increased mid-teens due todouble digits. Positive impacts of a double digitvolume increase, in volume, inflation-related price increaseshigher pricing (driven primarily by North America and Latin America) and favorable mix (due to the disproportionate volume growth of North America and respiratory products, both of which have higher than category-average selling prices) were partially offset by unfavorable foreign exchange. Organic sales increased double digits. Volume increased more than 40% in APAC, increased mid-teensincrease was driven by growth in North America and Europe (both due to a stronger respiratory season), partially offset by a decline in IMEA (versus a base period impacted by pandemic-related consumption increases in certain markets). Organic sales increased mid-single digitshigh teens driven by growth in all regions led by a more than 20% growth in North America, about 20% growth in Europe and double-digit growth in Latin America and IMEA due to market recovery of respiratory products and innovation across segments.America. Global market share of the Personal Health Care category was unchanged.decreased more than half a point.
Net earnings increased 1%17% to $529$617 million due to the increase in net sales partially offset byand a 140260 basis-point decreaseincrease in net earnings margin. Net earnings margin decreasedincreased due primarily to a decrease in gross margin, an increase in SG&A as a percentagepercentage of net sales and a slight increase in gross margin. a decrease in other non-operating income. The decreaseincrease in gross margin was driven by increased commoditypricing and transportation costs, and unfavorablefavorable mix caused(caused by the disproportionate growth of premium-priced, profit-accretiverespiratory products that have lowerhigher than segment-average gross margins. These decreases are partiallymargins), mostly offset by manufacturing cost savings, increased pricingcommodity and favorable foreign exchange.input material costs. SG&A as a percentage of net sales increased primarily due to an increase in media spending behind innovation support, partially offset by the positive scale impacts of the net sales increase. Non-operating income as a percentage of net sales decreased due to a minor brand divestiture gainthe positive scale impacts of the net sales increase and higher efficiencies in the base period.marketing spending.
Fabric & Home Care
Three months ended September 30, 20212022 compared with three months ended September 30, 20202021
Fabric & Home Care net sales increased 5%1% to $7.0$7.1 billion ondriven by higher pricing of 11% and favorable mix of 1% (due to a 2% increasedisproportionate volume decline in unit volume. Higher pricing increased net sales by 2%. Favorable mix increased net sales by 1% due to the disproportionate growth of the North America region and premium forms in Fabric Care, all ofEurope, which have higherhas lower than segment-average selling prices. Foreignprices), partially offset by unfavorable foreign exchange hadof 6% and a 1% positive impact to net sales.decrease in unit volume of 4%. Organic sales increased 5%8%. Global market share of the Fabric & Home Care segment increased 1.3 points.was unchanged.
•Fabric Care net sales increased highlow single digits duedigits. Positive impacts of higher pricing (driven primarily by North America, Europe and Latin America) and favorable mix (due to a low single digit increasevolume decline in volume, increased pricing, favorableEurope, which has lower than category-average selling prices) were partially offset by unfavorable foreign exchange and positive mix impacts duea decrease in unit volume. The volume decrease was primarily driven by declines in Europe (due to the growth of theportfolio reduction in Russia and increased pricing) and North America region(due to market contraction) partially offset by growth in Asia Pacific, Latin America and premium forms like fabric enhancer beads and laundry unit dose, all of which have higher than category-average selling prices.IMEA. Organic sales increased high single digits. Increased volume wasdigits driven by high singlea more than 30% growth in Latin America, more than 20% growth in IMEA, mid-teens growth in Asia Pacific, mid-single digit increasesgrowth in North America and Latin America (due to innovation, including fabric enhancers and unit dose, and increased distribution) and a low single digit increasesingle-digit growth in Europe (due to innovation), partially offset by a low single digit decline in Asia Pacific (due to pandemic-related lockdowns in certain markets).Europe. Global market share of the Fabric Care category increased moredecreased less than a point.
•Home Care net sales increased low single digits duewere unchanged. Positive impacts of higher pricing (driven primarily to increased pricing, partially offset by a low single digit decrease in volumeEurope and unfavorableNorth America) and favorable mix due(due to a volume decreasedecline in the North America regionEurope, which has a higherlower than category-average selling price. Organic sales also increased low single digits.prices) were fully offset by unfavorable foreign exchange and a decrease in unit volume. The volume decrease was driven by declines in Europe and North America, both due to market contraction versus a lowhigh base period of increased consumption of cleaning products. Organic sales increased high single digit declinedigits driven by about 40% growth in Latin America, double-digit growth in Europe and mid-single-digit growth in North America (due to pandemic-related consumption increases in the base period), partially offset by a low single digit increase in Europe (due to innovation).America. Global market share of the Home Care category increased more than a point.
Net earnings decreased 12%2% to $1.2 billion as the increase in net sales was more than offset by a 330 basis point50 basis-point reduction in net earnings margin. Net earnings margin decreased due primarily to a reduction in gross margin.margin, partially offset by a reduction in SG&A as a percentage of net sales. The gross margin decrease was driven by an increase in commodity and input material costs, transportation costs, unfavorable foreign exchange and unfavorablenegative product mix caused by the growth(due to decline of premium-priced, profit-accretive productsfabric enhancers that have lowerhigher than segment-average gross margins, margins), partially offset by increased selling prices.pricing. SG&A as a percentage of net sales declined marginallydecreased due to the positive scale benefits of the net sales increase.increase and increased efficiencies in marketing spending.
Baby, Feminine & Family Care
Three months ended September 30, 20212022 compared with three months ended September 30, 20202021
Baby, Feminine & Family Care net sales increased 3%1% to $4.9 billion ondriven by higher pricing of 8% and favorable product and geographic mix of 1%, partially offset by unfavorable foreign exchange of 5% and a 1% increasedecrease in unit volume. Favorable mix had a 2% positive impact to net sales due to the disproportionate growthvolume of North America and growth of premium diaper pants and adult incontinence products, all of which have higher than segment-average selling prices. Foreign exchange had a positive 1% impact to net sales. Lower pricing reduced net sales by 1% due to increased promotional spending related to Family Care products.3%. Organic sales increased 2%6%. Global market share of the Baby, Feminine & Family Care segment increased 0.7 points.was unchanged.
•Baby Care net sales increased high single digits due to adecreased low single digit increasedigits. Negative impacts of a decrease in unit volume inflation-driven price increases, positiveand unfavorable foreign exchange were partially offset by higher pricing (driven primarily by Europe, North America and Latin America) and favorable product mix (due to thea higher proportion of pants, which have higher than category-average selling prices). The volume decrease was driven by declines in Europe (due primarily to portfolio reduction in Russia), North America and Greater China (due to market contraction), partially offset by growth of premium pantsin Latin America and taped diaper products) and favorable foreign exchange impact.IMEA. Organic sales increased mid-single digits. Volume increased mid-teensdigits driven by more than 30% growth in Latin America, (due to innovation)low teens growth in IMEA, mid-single-digit growth in North America and increased mid-single digitslow single-digit growth in Europe, (due to increased consumption following pandemic-related slowdowns), partially offset by a double digithigh single-digit decline in Greater China (due to increased competitive activity and trade inventory reductions) and a high single digit decline in Asia Pacific (due to market size declines).China. Global market share of the Baby Care category was unchanged.increased more than half a point.
•Feminine Care net sales increased high single digits due to a low single digit increase in volume, favorable foreign exchange, increasedmid-single digits. Positive impacts of higher pricing and positive mix driven(driven primarily by the growth of the North America region and the growth of premium adult incontinenceEurope) and premium pads and tampons, all offavorable mix (due to volume decline in Europe, which have higherhas lower than category-average selling prices. Organic sales increased mid-single digits. Volume increased double digitsprices) were partially offset by unfavorable foreign exchange and a decrease in unit volume. The volume decrease was driven by declines in Europe (due to portfolio reduction in Russia), North America (due to innovationsupply constraints) and distribution gains) and low single digits in EuropeIMEA (due to trade inventory build ahead of price increases)increased pricing in certain markets), partially offset by mid-single digit volume decreasesgrowth in IMEA (due to pandemic-relatedLatin America. Organic sales increased consumptiondouble digits driven by growth in base period), in Greater China (due to lower consumption) andall regions led by a more than 30% increase in Latin America, (due to increased competitive activity).mid-teens increase in Europe and double-digit increases in North America and Asia Pacific. Global market share of the Feminine Care category increased nearlyhalf a point.
•Net sales in Family Care, which is predominantly a North AmericanAmerica business, net sales decreased mid-single digits as aincreased low single digit increasedigits driven by higher pricing, partially offset by a decrease in unit volume (due to market contraction and increased promotional events) was more than offset by lower pricing (in the form of increased promotional spending versus a low base period impacted by the pandemic) and unfavorable mix (due to disproportionate growth of large count packs)competitive activity). Organic sales also decreased mid-singleincreased low single digits. North America share of the Family Care category increased almost two points.decreased more than a point.
Net earnings decreased 18%3% to $826$805 million as the increase in net sales was more than offset by a 44070 basis-point decrease in net earnings margin. Net earnings margin decreased primarily due to a decrease in gross margin, partially offset by lower SG&A as
a percentage of net sales. Gross margin decreased primarily due to an increase in commodity and transportationinput material costs and lower selling prices,transportation costs, partially offset by favorable foreign exchange.increased pricing. SG&A as a percentage of net sales decreased due to reductionsthe positive scale benefits of the net sales increase and increased efficiencies in both marketing and overhead costs.
Corporate
Corporate includes certain operating and non-operating activities not allocated to specific business segments. These include: theinclude but are not limited to incidental businesses managed at the corporate level; financing and investing activities; certain employee benefit costs; other general corporate items; thelevel, gains and losses related to certain divested brands or businesses, impacts from various financing and categories;investing activities, impacts related to employee benefits, asset impairments and certain restructuring-typerestructuring activities to maintain a competitive cost structure, including manufacturing and workforce optimization. Corporate also includes reconciling items to adjust the accounting policies used inwithin the reportable segments to U.S. GAAP. The most significantnotable ongoing reconciling item relates tois income taxes, to adjust fromwhich adjusts the blended statutory rates that are reflected in the reportable segments to the overall Company effective tax rate.
Corporate net sales improved by $45$115 million to $138$253 million, due to an increase in sales of the incidental businesses managed at the corporate level. Corporate net earnings improveddecreased $218 million to a loss of $46 million as the benefit of the net sales growth was more than offset by $79 million in the quarter primarily due tohigher foreign exchange transactional charges, lower overhead costs and acurrent period tax benefits (primarily lower excess tax benefits of share-based compensation), prior period gain on the sale of real estate.estate and increased commodity costs tied to the aforementioned incidental businesses.
LIQUIDITY & CAPITAL RESOURCES
Operating Activities
We generated $4.6$4.1 billion of cash from operating activities fiscal year to date, a decrease of $96$573 million versus the prior year period. Net earnings, adjusted for non-cash items (depreciation and amortization, share-based compensation expense, deferred income taxes and gain on sale of assets), generated $4.9$4.6 billion of operating cash flow. Working capital and other impacts used $294$530 million of cash in the period. Accounts receivable increased, using $1.0 billion$740 million of cash, primarily due todriven by sales growth.growth across regions. Days sales outstanding also increased about three days driven by a higher relative amount of sales towards the end of the quarter. Inventorytwo days. Total inventories increased, consuming $409$893 million of cash primarily duedriven by increased safety stock levels to input cost increasesstrengthen supply chain sufficiency amidst business growth and inventory pre-builds for initiatives and seasonality in certain categories. Inventory daysincreased commodity costs. Days on hand decreasedincreased by threefour days. Accounts payable, accrued and other net operating assets and liabilities increased, generating $1.1$1.0 billion of cash. This was primarilycash, driven by higher trade payables caused byfrom an increase in supply chain costs (commodities, transportation, etc.)activities and to a lesser extent, extended payment terms with our suppliers,current year tax accruals in excess of estimated payments. This is partially offset by the payment of prior fiscal year-end incentive compensation and other salary-related accruals. The number of daysDays payable outstanding stayed relatively flat at 86 days.increased by one day.
Investing Activities
Investing activities used $1.0 billion$832 million of cash fiscal year to date primarily due todriven by capital expenditures.
Financing Activities
Financing activities used $3.4$3.5 billion of net cash fiscal year to date. We used $2.8$4.0 billion for treasury stock purchases and $2.2$2.3 billion for dividends. The increase inWe generated $2.6 billion from net short-term debt increases and $188 million from the exercise of stock options and other financing activities generated $1.6 billion of cash.impacts.
As of September 30, 2021,2022, our current liabilities exceeded current assets by $12.3$14.1 billion. We have short- and long-term debt to meet our financing needs. We anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations. We have strong short- and long-term debt ratings that have enabled and should continue to enable us to refinance our debt as it becomes due at favorable rates in commercial paper and bond markets. In addition, we have agreements with a diverse group of financial institutions that, if needed, should provide sufficient credit funding to meet short-term financing requirements.
RECONCILIATION OF MEASURES NOT DEFINED BY U.S. GAAP
In accordance with the SEC's Regulation S-K Item 10(e), the following provides definitions of the non-GAAP measures and the reconciliation to the most closely related GAAP measure. Management believes that these non-GAAP measures provide useful perspective on underlying business trends and provide a supplemental measure of period-to-period financial results. Disclosing these non-GAAP financial measures allows investors and management to view our operating results excluding the impact of items that are not reflective of the underlying operating performance. Management uses these non-GAAP measures in making operating decisions, allocating financial resources and for business strategy purposes. Certain of these measures are also used to evaluate senior management and are a factor in determining their at-risk compensation. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP results.GAAP. Our non-GAAP financial measures do not represent a comprehensive basis of accounting. Therefore, our non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies.
Organic sales growth:Organic sales growth is a non-GAAP measure of sales growth excluding the impacts of acquisitions and divestitures and foreign exchange from year-over-year comparisons. We believe this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent basis. This measure is used in assessing achievement of management goals for at-risk compensation.
Adjusted free cash flow: Adjusted free cash flow is defined as operating cash flow less capital spending and excluding payments for the transitional tax payments resulting from the U.S. Tax Act (the Company incurred a transitional tax liability of approximately $3.8 billionbeginning in fiscal 2018 from the U.S. Tax Act of 2017, which is payable over a period of 8 years).2019. Adjusted free cash flow represents the cash that the Company is able to generate after taking into account planned maintenance and asset
expansion. Management views adjusted free cash flow as an important measure because it is one factor used in determining the amount of cash available for dividends, share repurchases, acquisitions and other discretionary investments.
Adjusted free cash flow productivity: Adjusted free cash flow productivity is defined as the ratio of adjusted free cash flow to net earnings. Management views adjusted free cash flow productivity as a useful measure to help investors understand P&G’s ability to generate cash. Adjusted free cash flow productivity is used by management in making operating decisions, allocating financial resources and for budget planning purposes. This measure is also used in assessing the achievement of management goals for at-risk compensation. The Company's long-term target is to generate annual adjusted free cash flow productivity at or above 90 percent.
Core EPS: Core earnings per share, or Core EPS, is a measure of the Company's diluted net earnings per share excluding items that are not judged to be part of the Company's sustainable results or trends. For the three months ended September 30, 2021 compared with the three months ended2022 and September 30, 2020,2021, there arewere no adjustments to or reconciling items for diluted net earnings per share. Management views this non-GAAP measure as a useful supplemental measure of Company performance over time. This measure is also used when evaluating senior management in determining their at-risk compensation.
Organic sales growth: | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2021 | Net Sales Growth | | Foreign Exchange Impact | | Acquisition & Divestiture Impact/Other (1) | | Organic Sales Growth |
Beauty | 5% | | (3)% | | —% | | 2% |
Grooming | 5% | | (1)% | | —% | | 4% |
Health Care | 8% | | (1)% | | —% | | 7% |
Fabric & Home Care | 5% | | (1)% | | 1% | | 5% |
Baby, Feminine & Family Care | 3% | | (1)% | | —% | | 2% |
Total Company | 5% | | (1)% | | —% | | 4% |
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Three Months Ended September 30, 2022 | Net Sales Growth | | Foreign Exchange Impact | | Acquisition & Divestiture Impact/Other (1) | | Organic Sales Growth |
Beauty | —% | | 6% | | (2)% | | 4% |
Grooming | (4)% | | 8% | | 1% | | 5% |
Health Care | 3% | | 5% | | —% | | 8% |
Fabric & Home Care | 1% | | 6% | | 1% | | 8% |
Baby, Feminine & Family Care | 1% | | 5% | | —% | | 6% |
Total Company | 1% | | 6% | | —% | | 7% |
(1)Acquisitions/Acquisitions & Divestiture Impact/Other includes the volume and mix impact of acquisitions and divestitures and rounding impacts necessary to reconcile net sales to organic sales.
Adjusted free cash flow (dollar amounts in millions): | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2021 |
Operating Cash Flow | | Capital Spending | | U.S. Tax Act Payments | | Adjusted Free Cash Flow |
$4,643 | | $(1,091) | | $225 | | $3,777 |
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Three Months Ended September 30, 2022 |
Operating Cash Flow | | Capital Spending | | U.S. Tax Act Payments | | Adjusted Free Cash Flow |
$4,070 | | $(890) | | $225 | | $3,405 |
Adjusted free cash flow productivity (dollar amounts in millions): | | | | | | | | | | | | | | |
Three Months Ended September 30, 2021 |
Adjusted Free Cash Flow | | Net Earnings | | Adjusted Free Cash Flow Productivity |
$3,777 | | $4,126 | | 92% |
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Three Months Ended September 30, 2022 |
Adjusted Free Cash Flow | | Net Earnings | | Adjusted Free Cash Flow Productivity |
$3,405 | | $3,963 | | 86% |
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
There have been no material changes in the Company’s exposure to market risk since June 30, 2021.2022. Additional information can be found in Note 79 - Risk Management Activities and Fair Value Measurements of the Consolidated Financial Statements.
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Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
The Company’s Chairman of the Board, President and Chief Executive Officer, David S. Taylor,Jon R. Moeller, and the Company’s Chief Financial Officer, Andre Schulten, performed an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (“Exchange Act”)(Exchange Act)) as of the end of the period covered by this report. Messrs. TaylorMoeller and Schulten have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) accumulated and communicated to our management, including Messrs. TaylorMoeller and Schulten, to allow their timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the Company’s fiscal quarter ended September 30, 20212022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
The Company is subject, from time to time, to certain legal proceedings and claims arising out of our business, which cover a wide range of matters, including antitrust and trade regulation, product liability, advertising, contracts, environmental issues, patent and trademark matters, labor and employment matters and tax. In addition, SEC regulations require that we disclose certain environmental proceedings arising under Federal, State or local law when a governmental authority is a party and such proceeding involves potential monetary sanctions that the Company reasonably believes will exceed a certain threshold ($1 million or more).
There are no relevant matters to disclose under this Item for this period.
For information on risk factors, please refer to "Risk Factors" in Part I, Item 1A of the Company's Form 10-K for the fiscal year ended June 30, 2021.2022.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
ISSUER PURCHASES OF EQUITY SECURITIES | | | | | | | | | | | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased (1) | | Average Price Paid per Share (2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3) | | Approximate Dollar Value of Shares That May Yet Be Purchased Under Our Share Repurchase Program |
7/01/2021 - 7/31/2021 | 8,475,371 | | | $138.46 | | 6,470,128 | | | (3) |
8/01/2021 - 8/31/2021 | 6,281,791 | | | $143.27 | | 6,281,791 | | | (3) |
9/01/2021 - 9/30/2021 | 6,600,892 | | | $143.92 | | 6,600,892 | | | (3) |
Total | 21,358,054 | | | $141.56 | | 19,352,811 | | | |
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Period | Total Number of Shares Purchased (1) | | Average Price Paid per Share (2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3) | | Approximate Dollar Value of Shares That May Yet Be Purchased Under Our Share Repurchase Program |
7/01/2022 - 7/31/2022 | 6,223,741 | | | $144.15 | | 4,865,898 | | | (3) |
8/01/2022 - 8/31/2022 | 11,296,995 | | | $146.06 | | 11,296,995 | | | (3) |
9/01/2022 - 9/30/2022 | 12,025,751 | | | $137.21 | | 12,025,751 | | | (3) |
Total | 29,546,487 | | | $142.06 | | 28,188,644 | | | |
(1)All transactions are reported on a trade date basis and were made in the open market with large financial institutions. This table excludes shares withheld from employees to satisfy minimum tax withholding requirements on option exercises and other equity-based transactions. The Company administers cashless exercises through an independent third party and does not repurchase stock in connection with cashless exercises.
(2)Average price paid per share for open market transactions excludes commission.
(3)On October 19, 2021,2022, the Company stated that in fiscal year 20222023 the Company expects to reduce outstanding shares through direct share repurchases at a value of $7$6 to $9$8 billion, notwithstanding any purchases under the Company's compensation and benefit plans. Purchases may be made in the open market and/or private transactions and purchases may be increased, decreased or discontinued at any time without prior notice. The share repurchases are authorized pursuant to a resolution issued by the Company's Board of Directors and are expected to be financed by a combination of operating cash flows and issuance of long-term and short-term debt.
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3-1 | | Amended Articles of Incorporation (as amended by shareholders at the annual meeting on October 11, 2011 and consolidated by the Board of Directors on April 8, 2016) (Incorporated by reference to Exhibit (3-1) of the Company's Form 10-K for the year ended June 30, 2016). |
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3-2 | | Regulations (as approved by the Board of Directors on April 8, 2016, pursuant to authority granted by shareholders at the annual meeting on October 13, 2009) (Incorporated by reference to Exhibit (3-2) of the Company's Form 10-K for the year ended June 30, 2016). |
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10-1 | | Summary of the Company’s Short Term Achievement Reward Program* + |
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10-2 | | Short Term Achievement Reward Program - Related Correspondence and Terms and Conditions* + |
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10-3 | | Long-Term Incentive Program - Related Correspondence and Terms and Conditions* + |
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10-4 | | Performance Stock Program - Related Correspondence and Terms and Conditions* + |
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10-5 | | Summary of Additional Personal Benefits Available to Certain Officers and Non-Employee Directors* + |
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31.1 | | | Rule 13a-14(a)/15d-14(a) Certification – Chief Executive Officer + |
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31.2 | | | Rule 13a-14(a)/15d-14(a) Certification – Chief Financial Officer + |
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32.1 | | | Section 1350 Certifications – Chief Executive Officer + |
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32.2 | | | Section 1350 Certifications – Chief Financial Officer + |
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101.SCH (1)
| | Inline XBRL Taxonomy Extension Schema Document |
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101.CAL (1)
| | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF (1)
| | Inline XBRL Taxonomy Definition Linkbase Document |
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101.LAB (1)
| | Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE (1)
| | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | | | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
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* | Compensatory plan or arrangement |
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+ | Filed herewith |
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(1) | Pursuant to Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 or 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | THE PROCTER & GAMBLE COMPANY |
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October 19, 2021 | | | | /s/ MICHAEL G. HOMAN |
Date | | | | (Michael G. Homan) |
| | | | Senior Vice President - Chief Accounting Officer (Principal Accounting Officer) |
EXHIBIT INDEX | | | | | | | | |
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101.SCH (1) | | Inline XBRL Taxonomy Extension Schema Document |
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101.CAL (1) | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF (1) | | Inline XBRL Taxonomy Definition Linkbase Document |
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101.LAB (1) | | Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE (1) | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | | | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
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+ | Filed herewith |
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(1) | Pursuant to Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 or 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | THE PROCTER & GAMBLE COMPANY |
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October 19, 2022 | | | | /s/ MATTHEW W. JANZARUK |
Date | | | | (Matthew W. Janzaruk) |
| | | | Senior Vice President - Chief Accounting Officer (Principal Accounting Officer) |