FOR IMMEDIATE RELEASE
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STRONG VOLUME AND OPERATING MARGIN IMPROVEMENTS DRIVE EARNINGS GROWTH
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P&G GUIDES EARNINGS HIGHER FOR JANUARY - MARCH QUARTER AND FISCAL YEAR
CINCINNATI, Jan. 28, 2003 - The Procter & Gamble Company announced
another period of strong business growth for the quarter ended Dec. 31, 2002.
This is the fourth consecutive quarter of double-digit core earnings progress -
and attainment of long-term growth objectives.
For the quarter ended Dec. 31, 2002, unit volume grew eight percent
over the prior year, behind double-digit growth in the health care and beauty
care businesses, as well as very strong results in the baby and family care
business. Excluding acquisitions and divestitures, unit volume increased seven
percent. Reported net sales were $11.01 billion, up six percent versus year-ago,
as strategic pricing investments and mix partially offset volume growth. The net
foreign exchange impacts increased sales by one percent, reflecting the benefits
of the Euro offset by Latin American devaluations.
"This was a strong quarter where we exceeded expectations despite a
very challenging global economic and competitive environment," said AG Lafley,
chairman, chief executive and president of P&G. "At the midpoint of our fiscal,
we are well positioned to meet our growth goals for the year. We have the right
strategies and we're making the necessary systemic interventions to sustain
long-term top- and bottom-line growth objectives."
Net earnings for the quarter were $1.49 billion or $1.06 per share, up
14 percent versus year ago. Results included a $98 million after tax ($0.07 per
share) restructuring charge related to the company's program to streamline its
operations and business portfolio. This restructuring program charge for the
quarter included employee separation costs of $54 million before tax and
asset-related charges of $73 million before tax. Net earnings in the year-ago
quarter were $1.30 billion or $0.93 per share, including a $146 million after
tax ($0.10 per share) restructuring charge.
Core net earnings, which excludes restructuring charges, grew ten
percent to $1.59 billion for the quarter. On a per share basis, core earnings
grew ten percent to $1.13.
KEY FINANCIAL HIGHLIGHTS
- ------------------------
o Core gross margin expanded 140 basis points; this excludes $84 million
before tax in restructuring charges in the current quarter and $82
million before tax in the prior quarter. This marks another quarter of
significant improvement, consistent with the strong results delivered
over the preceding six quarters. This expansion primarily was driven by
base business savings, which includes both systemic material price
improvements and volume benefits. Restructuring program savings and
improved margin mix also contributed.
o Core Marketing Research and Administration (MR&A) as a percent of sales
decreased about 40 basis points behind reductions in overhead costs
partially offset by increased marketing spending, primarily in beauty
care. This excludes $57 million before tax in restructuring charges in
the current quarter and $121 million in the prior quarter, year-ago.
o Core operating income growth was robust, up 16 percent, versus the
prior year. Core net earnings increased ten percent despite
non-operating gains from the divestiture of Comet in the base period.
o The company's free cash flow before dividends for the second quarter
was $1.98 billion, representing a $0.45 billion (+29%) increase over
the same quarter year-ago. Free cash flow before dividends for the
first half of the year was $3.71 billion, representing a $1.20 billion
(+48%) increase over the same period last year. This increase was
driven primarily by improved earnings growth.
BUSINESS SEGMENT DISCUSSION:
- ---------------------------
The following provides additional perspective on the company's October
- - December results by business segment. Double-digit earnings progress was
achieved by each business segment, despite the economic challenges in Latin
America.
o Fabric and home care delivered strong results this quarter. Unit volume
growth was broad-based, increasing eight percent on continued strength
across most regions. Net sales were $3.10 billion, up five percent. Sales
growth trailed volume due to pricing adjustments to restage the North
American Cheer(R) brand. Also, negative mix in laundry was driven by a
strong performance on mid-tier brands, growth in developing markets and
larger sizes. Net earnings increased 18 percent to $514 million, driven by
higher volumes and gross operating margin expansion from ongoing base
business savings projects and lower material prices from systemic
purchasing improvements.
o Baby and family care quarterly volume, sales and earnings results also were
very strong. Unit volume increased eight percent behind global strength in
both baby care and family care, driven primarily by the Baby Stages of
Development(R) initiative, Charmin(R) in Western Europe and Mexico and in
U.S. Bounty(R). Net sales were $2.53 billion, up seven percent. Temporary
pricing adjustments in response to competitive activity in both the baby
and family care segments were partially offset by a positive one percent
foreign exchange impact and positive mix behind strength in premium tier
diapers. Earnings increased 21 percent to $276 million, reflecting volume
growth and continued cost reductions.
o Health care delivered excellent results this quarter with unit volume,
sales and earnings all up double-digits. Unit volume increased 18 percent,
driven by strong results in oral care and continued strength in
pharmaceuticals. Net sales were $1.57 billion, up 17 percent including a
one percent positive foreign exchange impact partially offsetting pricing
investments. Crest Whitestrips(R) and Actonel(R) both delivered
particularly strong volume and sales growth. Health care's net earnings
increased 47 percent to $253 million, reflecting volume growth and positive
mix toward high-margin products, partially offset by marketing investments
to fuel future growth.
o Beauty care posted strong results with double-digit volume, sales and
earnings growth. Unit volume was up 14 percent. Excluding the impact of
acquisitions and divestitures, volume was up six percent behind strength in
hair care, on Pantene(R) and Head & Shoulders(R), and fine fragrances.
Sales grew ten percent, including a positive one percent foreign exchange
impact, reaching $3.00 billion. Sales trailed volume growth due to mix
impacts driven by the Clairol business and the repositioning of the
company's hair care portfolio of brands into multiple price tiers to
deliver better consumer value. Net earnings were $507 million, up 15
percent behind the strong volume growth, which also funded increased
marketing investments.
o Snacks and beverages results were mixed. Unit volume was down one percent.
Sales grew one percent to $881 million, including a positive two percent
foreign exchange impact, as increased merchandising investments in
beverages was offset by positive category mix. Net earnings grew 15 percent
to $110 million behind positive mix and a continued focus on reducing
costs.
THIRD QUARTER AND FISCAL YEAR ESTIMATES
- ---------------------------------------
For the March quarter, volume is expected to be up six to eight percent
versus year-ago, behind continued core business strength. The net volume impact
from acquisitions and divestitures in the quarter is expected to be a negative
one percent due to the Jif/Crisco spin merge. Sales, excluding foreign exchange,
are expected to be up in the mid single-digits versus year-ago. At current
rates, foreign exchange is expected to have a positive two percent impact on the
topline. As a result of the strong topline growth, core earnings per share is
expected to grow eleven to thirteen percent, despite a difficult base period
comparison.
For the fiscal year, sales growth is expected to be at the top end of
the company's four to six percent target range. At current rates, foreign
exchange is expected to have about a one percent positive impact on the topline.
Earnings per share are expected to be in the twelve to thirteen percent range
for the full fiscal year.
All statements, other than statements of historical fact included in
this presentation, are forward-looking statements, as that term is defined in
the Private Securities Litigation Reform Act of 1995. In addition to the risks
and uncertainties noted in this release, there are certain factors that could
cause actual results to differ materially from those anticipated by some of the
statements made. These include: (1) the achievement of expected cost and tax
savings associated with changes in the company's organization structure; (2) the
ability to achieve business plans, including growing volume profitably, despite
high levels of competitive activity, especially with respect to the product
categories and geographical markets in which the company has chosen to focus;
(3) the ability to maintain key customer relationships; (4) the achievement of
growth in significant developing markets such as China, Turkey, Mexico, the
Southern Cone of Latin America, the countries of Central and Eastern Europe and
the countries of Southeast Asia; (5) the ability to successfully manage
regulatory, tax and legal matters, including resolution of pending matters
within current estimates; (6) the ability to successfully implement, achieve and
sustain cost improvement plans in manufacturing and overhead areas; (7) the
ability to successfully manage currency (including currency issues in Latin
America), interest rate and certain commodity cost exposures; and (8) the
ability to manage the continued political and/or economic uncertainty in Latin
America (including Venezuela) and the Middle East, as well as any political
and/or economic uncertainty due to terrorist activities or war (including
Korea). If the company's assumptions and estimates are incorrect or do not come
to fruition, or if the company does not achieve all of these key factors, then
the company's actual results might differ materially from the forward-looking
statements made herein.
ABOUT PROCTER & GAMBLE
- ----------------------
P&G is celebrating 165 years of providing trusted quality brands that
make every day better for the world's consumers. We market nearly 300 brands -
including Pampers(R), Tide(R), Ariel(R), Always(R), Whisper(R), Pantene(R),
Bounty(R), Pringles(R), Folgers(R), Charmin(R), Downy(R), Lenor(R), Iams(R),
Crest(R), Actonel(R), Olay(R) and Clairol Nice `n Easy(R) - in more than 160
countries around the world. The P&G community consists of nearly 102,000
employees working in almost 80 countries worldwide. Please visit WWW.PG.COM for
the latest news and in-depth information about P&G and its brands.
# # #
P&G CONTACTS:
MEDIA
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P&G Corporate Media Center:
US media call: 1-(866) PROCTER (1-866-776-2837)
Media outside the US call: 1-(513) 945-9087
INVESTOR RELATIONS
------------------
John P. Goodwin - (513) 983-2414
P&G will webcast its conference call on Tuesday, January 28, 2003, at
8:30 a.m. to review its second quarter 2002/03 results. The call will
last approximately one hour. You may receive the web cast by going to
our web site at: http://www.pg.com/investors
We suggest you check in at least ten minutes in advance of the start
time to complete the brief registration process and ensure you are set up to
receive the webcast.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per Share Amounts)
Consolidated Earnings Information
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Three Months Ended December 31, 2002
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% Change Earnings % Change % Change
Versus Before Versus Net Versus
Net Sales Year Ago Income Taxes Year Ago Earnings Year Ago
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FABRIC & HOME CARE $ 3,102 5% $ 768 16% $ 514 18%
BABY AND FAMILY CARE 2,526 7% 443 16% 276 21%
BEAUTY CARE 2,997 10% 731 19% 507 15%
HEALTH CARE 1,567 17% 374 42% 253 47%
SNACKS AND BEVERAGES 881 1% 168 17% 110 15%
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TOTAL BUSINESS SEGMENT 11,073 8% 2,484 20% 1,660 21%
CORPORATE (excluding restructuring costs) (77) n/a (173) n/a (68) n/a
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TOTAL COMPANY - CORE 10,996 6% 2,311 10% 1,592 10%
RESTRUCTURING COSTS 9 n/a (132) n/a (98) n/a
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TOTAL COMPANY - REPORTED $ 11,005 6% $ 2,179 14% $ 1,494 15%
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Six Months Ended December 31, 2002
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% Change Earnings % Change % Change
Versus Before Versus Net Versus
Net Sales Year Ago Income Taxes Year Ago Earnings Year Ago
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FABRIC & HOME CARE $ 6,234 7% $ 1,577 19% $ 1,061 20%
BABY AND FAMILY CARE 4,952 6% 843 13% 517 15%
BEAUTY CARE 6,120 18% 1,535 22% 1,055 19%
HEALTH CARE 2,977 18% 649 37% 449 44%
SNACKS AND BEVERAGES 1,703 2% 290 13% 201 18%
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TOTAL BUSINESS SEGMENT 21,986 11% 4,894 21% 3,283 21%
CORPORATE (excluding restructuring costs) (189) n/a (294) n/a (114) n/a
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TOTAL COMPANY - CORE 21,797 8% 4,600 14% 3,169 14%
RESTRUCTURING COSTS 4 n/a (283) n/a (211) n/a
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TOTAL COMPANY - REPORTED $ 21,801 8% $ 4,317 22% $ 2,958 23%
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THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
OCTOBER-DECEMBER NET SALES INFORMATION
(Percent Change vs. Year Ago) **
Volume
-------------------------------
With Without
Acquisitions/ Acquisitions/ Total Total Impact
Divestitures Divestitures FX Price Mix/Other Impact Ex-FX
--------------------------------------------------------------------------------------------------
FABRIC AND HOME CARE 8% 7% 0% -2% -1% 5% 5%
BABY AND FAMILY CARE 8% 8% 1% -4% 2% 7% 6%
BEAUTY CARE 14% 6% 1% -2% -3% 10% 9%
HEALTH CARE 18% 19% 1% -2% 0% 17% 16%
SNACKS AND BEVERAGES -1% -1% 2% -2% 2% 1% -1%
TOTAL COMPANY (CORE) 8% 7% 1% -2% -1% 6% 5%
** These sales percentage changes are approximations based on quantitative formulas that are consistently applied.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per Share Amounts)
Consolidated Earnings Information
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OND QUARTER
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W/O Restructuring Chgs
OND 02 OND 01 % CHG OND 02 OND 01 % CHG
-------- -------- ----- -------- -------- -----
NET SALES $ 11,005 $ 10,403 6 % $ 10,996 $ 10,389 6 %
COST OF PRODUCTS SOLD 5,490 5,339 3 % 5,406 5,257 3 %
-------- -------- -------- --------
GROSS MARGIN 5,515 5,064 9 % 5,590 5,132 9 %
MARKETING, RESEARCH & ADMINISTRATION 3,267 3,200 2 % 3,210 3,079 4 %
-------- -------- -------- --------
OPERATING INCOME 2,248 1,864 21 % 2,380 2,053 16 %
TOTAL INTEREST EXPENSE 143 150 143 150
OTHER NON-OPERATING INCOME, NET 74 200 74 200
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES 2,179 1,914 14 % 2,311 2,103 10 %
INCOME TAXES 685 615 719 658
-------- -------- -------- --------
NET EARNINGS $ 1,494 $ 1,299 15 % $ 1,592 $ 1,445 10 %
======== ======== ======== ========
EFFECTIVE TAX RATE 31.4 % 32.1 % 31.1 % 31.3 %
PER COMMON SHARE:
BASIC NET EARNINGS $ 1.13 $ 0.98 15 % $ 1.20 $ 1.09 10 %
DILUTED NET EARNINGS $ 1.06 $ 0.93 14 % $ 1.13 $ 1.03 10 %
DIVIDENDS $ 0.41 $ 0.38 $ 0.41 $ 0.38
AVERAGE DILUTED SHARES OUTSTANDING 1,402.6 1,401.5 1,402.6 1,401.5
Basis Pt Basis Pt
COMPARISONS AS A % OF NET SALES Chg Chg
- ------------------------------- ------- --------
COST OF PRODUCTS SOLD 49.9 % 51.3 % 49.2 % 50.6 %
GROSS MARGIN 50.1 % 48.7 % 140 50.8 % 49.4 % 140
MARKETING, RESEARCH & ADMINISTRATION 29.7 % 30.8 % (110) 29.2 % 29.6 % (40)
OPERATING MARGIN 20.4 % 17.9 % 250 21.6 % 19.8 % 180
EARNINGS BEFORE INCOME TAXES 19.8 % 18.4 % 21.0 % 20.2 %
NET EARNINGS 13.6 % 12.5 % 14.5 % 13.9 %
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FYTD
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W/O Restructuring Chgs
12/31/02 12/31/01 % CHG 12/31/02 12/31/01 % CHG
-------- -------- ----- -------- -------- -----
NET SALES $ 21,801 $ 20,169 8 % $ 21,797 $ 20,131 8 %
COST OF PRODUCTS SOLD 10,979 10,450 5 % 10,812 10,248 6 %
-------- -------- -------- --------
GROSS MARGIN 10,822 9,719 11 % 10,985 9,883 11 %
MARKETING, RESEARCH & ADMINISTRATION 6,395 6,093 5 % 6,275 5,758 9 %
-------- -------- -------- --------
OPERATING INCOME 4,427 3,626 22 % 4,710 4,125 14 %
TOTAL INTEREST EXPENSE 287 307 287 307
OTHER NON-OPERATING INCOME, NET 177 222 177 222
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES 4,317 3,541 22 % 4,600 4,040 14 %
INCOME TAXES 1,359 1,138 1,431 1,253
-------- -------- -------- --------
NET EARNINGS $ 2,958 $ 2,403 23 % $ 3,169 $ 2,787 14 %
======== ======== ======== ========
EFFECTIVE TAX RATE 31.5 % 32.1 % 31.1 % 31.0 %
PER COMMON SHARE:
BASIC NET EARNINGS $ 2.23 $ 1.81 23 % $ 2.39 $ 2.10 14 %
DILUTED NET EARNINGS $ 2.10 $ 1.71 23 % $ 2.25 $ 1.99 13 %
DIVIDENDS $ 0.82 $ 0.76 $ 0.82 $ 0.76
AVERAGE DILUTED SHARES OUTSTANDING 1,404.9 1,401.0 1,404.9 1,401.0
Basis Pt Basis Pt
COMPARISONS AS A % OF NET SALES Chg Chg
- ------------------------------- ------- --------
COST OF PRODUCTS SOLD 50.4 % 51.8 % 49.6 % 50.9 %
GROSS MARGIN 49.6 % 48.2 % 140 50.4 % 49.1 % 130
MARKETING, RESEARCH & ADMINISTRATION 29.3 % 30.2 % (90) 28.8 % 28.6 % 20
OPERATING MARGIN 20.3 % 18.0 % 230 21.6 % 20.5 % 110
EARNINGS BEFORE INCOME TAXES 19.8 % 17.6 % 21.1 % 20.1 %
NET EARNINGS 13.6 % 11.9 % 14.5 % 13.8 %
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions)
Consolidated Cash Flows Information
----------------------------
Six Months Ended December 31
----------------------------
2002 2001
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OPERATING ACTIVITIES
NET EARNINGS $ 2,958 $ 2,403
DEPRECIATION AND AMORTIZATION 844 784
DEFERRED INCOME TAXES 166 115
CHANGES IN:
ACCOUNTS RECEIVABLE (117) (397)
INVENTORIES (89) (139)
ACCOUNTS PAYABLE, ACCRUED AND OTHER LIABILITIES 73 876
OTHER OPERATING ASSETS & LIABILITIES 151 (542)
OTHER 340 77
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TOTAL OPERATING ACTIVITIES 4,326 3,177
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CAPITAL EXPENDITURES (616) (668)
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FREE CASH FLOW BEFORE DIVIDENDS $ 3,710 $ 2,509
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THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions)
Consolidated Balance Sheet Information
December 31, June 30,
2002 2002
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CASH AND CASH EQUIVALENTS $ 5,106 $ 3,427
INVESTMENTS SECURITIES 218 196
ACCOUNTS RECEIVABLE 3,240 3,090
TOTAL INVENTORIES 3,610 3,456
OTHER 2,017 1,997
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TOTAL CURRENT ASSETS 14,191 12,166
NET PROPERTY, PLANT AND EQUIPMENT 13,125 13,349
NET GOODWILL AND OTHER INTANGIBLE ASSETS 13,446 13,430
OTHER NON-CURRENT ASSETS 1,680 1,831
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TOTAL ASSETS $ 42,442 $ 40,776
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ACCOUNTS PAYABLE $ 2,021 $ 2,205
ACCRUED AND OTHER LIABILITIES 5,352 5,330
TAXES PAYABLE 1,839 1,438
DEBT DUE WITHIN ONE YEAR 3,491 3,731
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TOTAL CURRENT LIABILITIES 12,703 12,704
LONG-TERM DEBT 11,534 11,201
OTHER 3,369 3,165
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TOTAL LIABILITIES 27,606 27,070
------------ ------------
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TOTAL SHAREHOLDERS' EQUITY 14,836 13,706
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 42,442 $ 40,776
============ ============