THE PROCTER & GAMBLE COMPANY
NEWS RELEASE One P&G Plaza
Cincinnati, OH 45202
FOR IMMEDIATE RELEASE
P&G BEATS FIRST QUARTER EARNINGS EXPECTATIONS ON
RECORD VOLUME AND SALES
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CINCINNATI, Oct. 27, 2003 - The Procter & Gamble Company (NYSE:PG)
today announced excellent top line results and double-digit earnings growth for
the July-September quarter, beating analysts' consensus earnings expectations.
Volume and sales results were a new record.
"We're off to a very strong start this year. Business strength is broad
based across leading brands, top countries and top customers," said Chairman of
the Board, President and Chief Executive A. G. Lafley. "We're delivering strong
sales growth and strong gross margin improvement, which enabled investments in
new products like Olay Regenerist(R) and Prilosec OTC(R). Strong first quarter
results give us confidence we will again deliver our fiscal year target of
double-digit earnings per share growth."
For the quarter ended Sept. 30, 2003, the company achieved double-digit
volume, sales and earnings growth against strong base period comparisons. Unit
volume increased 12 percent, including the impact of the recently completed
acquisition of Wella AG. Organic volume, which excludes the impact of
acquisitions and divestitures from year-over-year comparisons, increased nine
percent. Health care led the business segments with unit volume growth of 23
percent; developing markets posted double-digit volume growth.
Net sales increased 13 percent to $12.20 billion. Foreign exchange had
a positive impact of three percent, which was partially offset by pricing
investments and mix effects, primarily from higher than expected growth in
developing markets and continued portfolio expansion into mid-tier brands.
Organic sales - excluding acquisitions and divestitures and the impact of
foreign exchange from year-over-year comparisons - increased seven percent. This
solid growth reflects the combination of base business growth, strong innovation
and the expansion of developing market businesses.
For the quarter, net earnings grew 20 percent to $1.76 billion.
Earnings growth was primarily driven by volume, the absence of restructuring
program charges due to its completion last year - $113 million in July-September
2002 - and lower manufacturing costs. This was partially offset by marketing
investments to support base business growth and new initiatives. Net earnings
increased 12 percent when compared to core net earnings in the base period,
which excludes restructuring program charges.
Net earnings per share increased 21 percent to $1.26. When compared to
core results for the base period, net earnings per share grew 13 percent. The
Wella acquisition did not have a significant impact on net earnings, consistent
with earlier guidance.
KEY FINANCIAL HIGHLIGHTS
- ------------------------
* Gross margin expanded 260 basis points. Excluding restructuring charges
in the prior period of $88 million, gross margin expanded 180 basis
points driven by the scale effect of volume and base business cost
savings.
* Marketing, Research, Administrative and Other Costs (MRA&O) as a
percentage of net sales increased 110 basis points. Excluding
restructuring charges in the base period of $63 million, MRA&O as a
percentage of net sales increased 170 basis points. This primarily
reflects investments behind the base business and in support of
initiatives such as Prilosec OTC(R), Crest Whitestrips(R) and Night
Effects(R), Olay Regenerist(R) and Swiffer(R). Approximately one third of
the basis point increase is due to Wella. This reflects the current ratio
of marketing expenses to sales and initial post-acquisition costs. MRA&O
also was impacted by costs associated with on-going actions to maintain a
competitive cost structure (for example, organizational streamlining).
* The company's operating cash flow for the quarter was $1.61 billion
versus $2.01 billion for the base period. The change in operating cash
flow was driven by increases in working capital largely due to a number
of short term impacts, such as initiative-related activities. Operating
cash flow was also lower due to one-time impacts in the base period,
including joint venture dividends. Capital spending as a percent of sales
was three percent - a slight increase versus prior year, but still well
below target levels. Free cash flow, defined as operating cash flow less
capital expenditures, was $1.24 billion.
* In September, the company completed the previously announced agreement to
acquire a majority ownership position in Wella AG. The company closed the
purchase agreement with the majority shareholders and completed the
purchase of shares through the tender offer launched in April 2003. P&G
now owns 99 percent of Wella's outstanding voting shares and 81 percent
of outstanding registered shares.
BUSINESS SEGMENT DISCUSSION
- ---------------------------
The following provides perspective on the company's July-September
results by business segment.
* Fabric and home care delivered record volume, sales and profit. Volume
was up eight percent behind strong growth in fabric care in the
developing regions and double-digit growth in global home care. The
continued success of the Swiffer WetJet(R) and Duster(R), Dawn
Complete(R) and Dawn Power Dissolver(R), and Febreze Anti-Allergen(R)
initiatives were key contributors to the home care growth. Net sales
increased eight percent to $3.39 billion. Three percent positive foreign
exchange was offset by mix and pricing effects. Double-digit growth in
developing geographies, including the expansion of Tide(R) in China, and
the continuing expansion of mid-tier brands, including the growth of
Bold(R) in Japan, resulted in negative mix impact on sales of two
percent. Net earnings increased to $562 million - three percent growth
against a very strong base period comparison of 22 percent growth. Mix
impacts and increased marketing investments to support product
initiatives also impacted earnings growth rates. Fabric and home care
earnings growth is expected to improve over the remainder of the fiscal
year.
* Beauty care posted strong double-digit earnings growth. Volume increased
21 percent, including the benefit from acquisitions and divestitures,
primarily Wella. Excluding acquisitions and divestitures, beauty care
volume increased eight percent. Net sales increased 20 percent to $3.75
billion, including a positive foreign exchange impact of three percent.
Negative mix of three percent was driven by the impact of Wella and
developing market growth. Organic sales, which exclude acquisitions and
divestitures and foreign exchange impacts, increased six percent despite
heavy competitive activity in North America. The solid base business
results were driven by continued global strength of the Pantene(R), Head
& Shoulders(R), Always/Whisper(R) and Olay(R) brands. Net earnings for
beauty care increased 12 percent to $616 million driven by volume growth
and lower manufacturing costs. Marketing spending increased to support
initiatives, including Pantene Daily Moisture Renewal(R) in Japan, the
expansion of Olay Regenerist(R) and continued support of Tampax Pearl(R),
as well as defense against competitive entries in the hair care and skin
care categories.
* Baby and family care delivered very strong results this quarter with
robust volume, sales and earnings growth. Unit volume increased six
percent, driven primarily by baby care. Baby care volume growth was
driven by continued momentum in the Baby Stages of Development(R) line in
Western Europe and North America, growth in Japan, and broadening of the
diaper product line in Latin America. Net sales grew seven percent to
$2.61 billion, including a positive foreign exchange impact of three
percent, partially offset by pricing investments of one percent and mix
of one percent. Pricing was driven by continued high competitive
promotional activity in North America family care. Earnings increased 22
percent to $295 million, reflecting strong volume growth and lower costs.
* Health care delivered outstanding volume, sales and earnings growth.
Volume growth of 23 percent was driven by the Prilosec OTC(R) launch in
September, the continued success of Actonel(R), Crest Whitestrips(R) and
Night Effects(R) and base business strength across multiple categories.
Net sales increased 23 percent to $1.73 billion as volume growth and a
positive three percent foreign exchange impact were offset by mix and
pricing, primarily on Crest Whitestrips taken in November 2002. Even
without the Prilosec OTC launch, health care delivered double-digit
volume, sales and earnings growth. Net earnings increased 41 percent to
$276 million on strong volume, sales and margin expansion. While
double-digit top line growth is expected for the fiscal year, results in
the remaining quarters are expected to return to consumption levels
following the one-time pipeline impact from Prilosec OTC.
* Snacks & Beverages delivered strong sales and earnings progress behind
solid top line growth. Volume was up three percent. Both Pringles(R) and
Folgers(R) delivered solid growth in the quarter. Net sales were $896
million, an increase of nine percent, including a three percent impact
from foreign exchange and price and mix impact of three percent. Positive
pricing includes a partial pass-through of higher commodity costs. For
the balance of the fiscal year, the company expects pricing will have a
neutral or slightly negative impact on sales based on the aggressive
pricing environment of the coffee category. Net earnings increased 20
percent to $109 million behind volume and sales growth and margin
expansion due to base business savings.
OCTOBER - DECEMBER QUARTER AND FISCAL YEAR GUIDANCE
- ---------------------------------------------------
For the December quarter, the company expects total sales to increase
14 to 19 percent. Organic sales are expected to grow five to eight percent
versus year-ago. Organic sales exclude the impacts of acquisitions and
divestitures and foreign exchange from year-over-year comparisons. The Wella
acquisition is expected to add sales growth of six to seven percent. Foreign
exchange is expected to add three to four percent to sales growth. Pricing and
mix is expected to have about a negative one percent impact on total sales
growth.
The company confirmed it is comfortable with the current range of
analysts' earnings estimates, despite the fact that the Wella acquisition is
expected to be slightly dilutive on the quarter.
For the fiscal year, total sales are expected to increase by 13 to 16
percent. Organic sales are expected to increase five to seven percent. Wella is
expected to add sales growth of six to seven percent. At current rates, foreign
exchange is expected to have a positive two percent impact on sales, while
pricing and mix will combine for a negative one percent impact.
Diluted net earnings per share are expected to increase in-line with
analysts' current consensus estimate.
NON-GAAP MEASURES
- -----------------
All references to "core" financial measures contained in this news
release exclude restructuring charges from base period results. The
restructuring program began in 1999 as part of the company's Organization 2005
initiative and was substantially completed at the end of fiscal year 2003. The
company believes investors gain additional perspective of underlying business
trends and results by providing a measure of earnings excluding restructuring
charges. The attached income statement provides a reconciliation of the
restructuring charges in the base period to the most comparable GAAP measure. A
historical reconciliation of reported-to-core financials during the Organization
2005 initiative is available on the company's website at www.pg.com/investor.
Going forward, the company will continue to conduct projects consistent with the
focus of productivity improvement and margin expansion. Charges associated with
these future projects will be absorbed in normal operating costs. Additionally,
the company provides organic volume and organic sales growth, which exclude the
impact of acquisitions and divestitures and foreign exchange from year-over-year
comparisons. The company believes this provides investors with a more complete
understanding of underlying results and trends of the base businesses.
FORWARD-LOOKING STATEMENTS
- --------------------------
All statements, other than statements of historical fact included in
this release, are forward-looking statements, as that term is defined in the
Private Securities Litigation Reform Act of 1995. In addition to the risks and
uncertainties noted in this release, there are certain factors that could cause
actual results to differ materially from those anticipated by some of the
statements made. These include: (1) the ability to achieve business plans,
including growing existing sales and volume profitably despite high levels of
competitive activity, especially with respect to the product categories and
geographical markets (including developing markets) in which the company has
chosen to focus; (2) successfully executing, managing and integrating key
acquisitions (including Wella) and completing planned divestitures (including
the potential divestiture of the company's juice business), (3) the ability to
manage and maintain key customer relationships; (4) the ability to maintain key
manufacturing and supply sources (including sole supplier and plant
manufacturing sources); (5) the ability to successfully manage regulatory, tax
and legal matters (including product liability matters), and to resolve pending
matters within current estimates; (6) the ability to successfully implement,
achieve and sustain cost improvement plans in manufacturing and overhead areas,
including successful completion of the company's outsourcing projects; (7) the
ability to successfully manage currency (including currency issues in volatile
countries), interest rate and certain commodity cost exposures; (8) the ability
to manage the continued global political and/or economic uncertainty, especially
in the company's significant geographical markets, as well as any political
and/or economic uncertainty due to terrorist activities; and (9) the ability to
successfully manage increases in the prices of raw materials used to make the
company's products. 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. For additional information concerning
factors that could cause actual results to materially differ from those
projected herein, please refer to our most recent 10-K, 10-Q and 8-K reports.
ABOUT PROCTER & GAMBLE
- ----------------------
Two billion times a day, P&G brands touch the lives of people around
the world. The company has one of the largest and strongest portfolios of
trusted, quality 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). The P&G community consists of nearly 98,000 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
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 Monday, Oct. 27, 2003, at 8:30
a.m. ET to review its first quarter 2003/04 results. The call will last
approximately one hour. You may receive the webcast 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 September 30, 2003
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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 AND HOME CARE $ 3,393 8% $ 832 3% $ 562 3%
BABY AND FAMILY CARE 2,607 7% 472 18% 295 22%
BEAUTY CARE 3,753 20% 913 14% 616 12%
HEALTH CARE 1,728 23% 406 48% 276 41%
SNACKS AND BEVERAGES 896 9% 162 33% 109 20%
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TOTAL BUSINESS SEGMENT 12,377 13% 2,785 16% 1,858 14%
CORPORATE (182) n/a (243) n/a (97) n/a
----------------------------------------------------------------------
TOTAL COMPANY - REPORTED 12,195 13% 2,542 19% 1,761 20%
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
JULY-SEPTEMBER 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% 8% 3% -1% -2% 8% 5%
BABY AND FAMILY CARE 6% 6% 3% -1% -1% 7% 4%
BEAUTY CARE 21% 8% 3% -1% -3% 20% 17%
HEALTH CARE 23% 23% 3% -2% -1% 23% 20%
SNACKS AND BEVERAGES 3% 3% 3% 1% 2% 9% 6%
TOTAL COMPANY 12% 9% 3% -1% -1% 13% 10%
** 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
---------------------------------- --------------------------
JAS QUARTER CORE*
---------------------------------- --------------------------
W/O Restructuring Charges
JAS 03 JAS 02 % CHG JAS 02 % CHG
--------- --------- ------- -------- --------
NET SALES $ 12,195 $ 10,796 13 % $ 10,801 13 %
COST OF PRODUCTS SOLD 5,879 5,489 7 % 5,406 9 %
--------- --------- ---------
GROSS MARGIN 6,316 5,307 19 % 5,395 17 %
MARKETING, RESEARCH, ADMINISTRATIVE & OTHER 3,673 3,128 17 % 3,065 20 %
--------- --------- ---------
OPERATING INCOME 2,643 2,179 21 % 2,330 13 %
TOTAL INTEREST EXPENSE 141 144 144
OTHER NON-OPERATING INCOME, NET 40 103 103
--------- --------- ---------
EARNINGS BEFORE INCOME TAXES 2,542 2,138 19 % 2,289 11 %
INCOME TAXES 781 674 712
NET EARNINGS 1,761 1,464 20 % 1,577 12 %
========= ========= =========
EFFECTIVE TAX RATE 30.7 % 31.5 % 31.1 %
PER COMMON SHARE:
BASIC NET EARNINGS $ 1.33 $ 1.10 21 % $ 1.19 12 %
DILUTED NET EARNINGS $ 1.26 $ 1.04 21 % $ 1.12 13 %
DIVIDENDS $ 0.46 $ 0.41 $ 0.41
AVERAGE DILUTED SHARES OUTSTANDING 1,398.9 1,407.3 1,407.3
COMPARISONS AS A % OF NET SALES Basis Pt Basis Pt
- ------------------------------- Chg Chg
COST OF PRODUCTS SOLD 48.2 % 50.8 % 50.1 %
GROSS MARGIN 51.8 % 49.2 % 260 50.0 % 180
MARKETING, RESEARCH, ADMINISTRATIVE & OTHER 30.1 % 29.0 % 28.4 %
OPERATING MARGIN 21.7 % 20.2 % 150 21.6 % 10
EARNINGS BEFORE INCOME TAXES 20.8 % 19.8 % 21.2 %
NET EARNINGS 14.4 % 13.6 % 14.6 %
* The company's multi-year restructuring program was substantially complete at
the end of FY 2003. Concurrent with the end of the program, the company
will no longer separately report core results.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions)
Consolidated Cash Flows Information
----------------------------------
Three Months Ended September 30
----------------------------------
2003 2002
---------------- ----------------
OPERATING ACTIVITIES
NET EARNINGS $ 1,761 $ 1,464
DEPRECIATION AND AMORTIZATION 407 410
DEFERRED INCOME TAXES 108 142
CHANGES IN:
ACCOUNTS RECEIVABLE (295) (44)
INVENTORIES (174) (105)
ACCOUNTS PAYABLE, ACCRUED AND OTHER LIABILITIES (76) (15)
OTHER OPERATING ASSETS & LIABILITIES (57) 65
OTHER (68) 93
---------------- ----------------
TOTAL OPERATING ACTIVITIES 1,606 2,010
---------------- ----------------
CAPITAL EXPENDITURES (364) (281)
---------------- ----------------
FREE CASH FLOW BEFORE DIVIDENDS $ 1,242 $ 1,729
================ ================
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions)
Consolidated Balance Sheet Information
Sept 30, 2003 June 30, 2003
---------------- ----------------
CASH AND CASH EQUIVALENTS $ 4,049 $ 5,912
INVESTMENTS SECURITIES 330 300
ACCOUNTS RECEIVABLE 4,134 3,038
TOTAL INVENTORIES 4,536 3,640
OTHER 2,624 2,330
---------------- ----------------
TOTAL CURRENT ASSETS 15,673 15,220
NET PROPERTY, PLANT AND EQUIPMENT 13,654 13,104
NET GOODWILL AND OTHER INTANGIBLE ASSETS 19,288 13,507
OTHER NON-CURRENT ASSETS 1,881 1,875
---------------- ----------------
TOTAL ASSETS $ 50,496 $ 43,706
================ ================
ACCOUNTS PAYABLE $ 2,957 $ 2,795
ACCRUED AND OTHER LIABILITIES 5,986 5,512
TAXES PAYABLE 2,583 1,879
DEBT DUE WITHIN ONE YEAR 5,286 2,172
---------------- ----------------
TOTAL CURRENT LIABILITIES 16,812 12,358
LONG-TERM DEBT 11,993 11,475
OTHER 4,320 3,687
---------------- ----------------
TOTAL LIABILITIES 33,125 27,520
---------------- ----------------
---------------- ----------------
TOTAL SHAREHOLDERS' EQUITY 17,371 16,186
---------------- ----------------
---------------- ----------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 50,496 $ 43,706
================ ================
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
---------------------------------------------
In accordance with the SEC's Regulation G, the following provides definitions of
the non-GAAP measures used in the earnings release and the reconciliation to the
most closely related GAAP measure.
ORGANIC UNIT VOLUME GROWTH
Measures unit volume growth excluding the impact due to acquisitions and
divestitures in year-over-year comparisons.
July - September Total Volume Growth 12%
Less: Volume due to Acquisitions/Divestitures 3%
----
Organic Unit Volume Growth 9%
ORGANIC SALES GROWTH
Measures sales growth excluding the impact of acquisitions and divestitures and
the impact of foreign exchange in year-over-year comparisons.
July - September Total Sales Growth 13%
Less: Foreign Exchange Impact 3%
Less: Sales due to Acquisitions/Divestitures 3%
----
Organic Sales Growth 7%
FREE CASH FLOW
Free cash flow is defined as: operating cash flow less capital spending. The
Company views free cash flow as an important measure because it indicates the
amount of cash available for discretionary investment.
Operating Capital Free
($MM) Cash Flow Spending Cash Flow
JAS `02 2,010 281 1,729
JAS `03 1,606 364 1,242
FREE CASH FLOW PRODUCTIVITY
Free cash flow productivity is defined as: free cash flow divided by net
earnings.
Free Net Free Cash Flow
($MM) Cash Flow Earnings Productivity
JAS '02 1,729 1,464 118%
JAS '03 1,242 1,761 71%