P&G
THE PROCTER & GAMBLE COMPANY
NEWS RELEASE One P&G Plaza
Cincinnati, OH 45202
FOR IMMEDIATE RELEASE
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P&G DELIVERS STRONG SALES AND EPS RESULTS DESPITE HURRICANE IMPACTS
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SALES UP 8%, EPS UP 15% EXCLUDING PRIOR YEAR DIVESTITURE GAIN
CINCINNATI, Nov.1, 2005 - The Procter & Gamble Company (NYSE:PG) announced
strong top and bottom-line growth for the July - September quarter. The company
delivered sales growth of eight percent and earnings per share growth of 10%
versus year-ago. Earnings per share were $0.77 for the quarter, $0.01 above
analysts' consensus estimates. Earnings per share increased 15% excluding the
one-time gain of $0.03 from the sale of the Juice business in the prior year.
EXECUTIVE SUMMARY
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o Unit volume grew six percent. Organic volume, which excludes acquisitions
and divestitures, increased seven percent. Growth was broad-based across
business segments and geographies. Beauty, family health, and household
care each delivered volume growth of six percent or greater. All regions
grew volume during the period. Developing markets continued to set the pace
with volume growing in the mid-teens.
o Net sales increased eight percent to $14.79 billion behind new product
innovations across the company. Favorable exchange rates and pricing
activity to offset rising costs each contributed one percent of growth.
Organic sales, which exclude the impacts of acquisitions, divestitures, and
foreign exchange, also increased eight percent.
o Diluted net earnings per share increased 10 percent to $0.77. The earnings
per share performance is especially impressive considering the impacts of
Hurricanes Katrina and Rita, rising energy and commodity costs, continued
high competitive spending, and a very strong base period with 17 percent
EPS growth.
"We're off to a good start with broad-based organic top-line growth," said
Chairman of the Board, President and Chief Executive A. G. Lafley. "P&G's
balanced business and geographic breadth has again demonstrated the ability to
deliver consistent, reliable net sales and earnings per share growth in good and
challenging times alike."
QUARTERLY DISCUSSION
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Unit volume for the July - September quarter increased six percent. Organic
volume, which excludes the impact of acquisitions and divestitures, grew seven
percent. Growth was broad-based with all regions delivering year-on-year volume
growth. This reflects progress on key brands and countries, with all of the
company's top 10 brands and countries delivering year-to-year volume growth.
Developing regions grew volume in the mid-teens for the period. Growth came
largely behind new product innovations and developing market expansion across
P&G's line-up of brands.
Net sales increased eight percent to $14.79 billion. Pricing contributed
one percent to sales growth behind actions taken in various businesses and
geographies that partially recovered the impact of higher commodity costs.
Favorable exchange rates also contributed one percent of sales growth. Organic
sales, which exclude the impacts of acquisitions, divestitures, and foreign
exchange, increased eight percent. Growth came largely behind new product
innovations across P&G's portfolio of brands such as Tide Coldwater, Tide with
Febreze, Dawn Bleach Alternative, Naturella expansion in Central and Eastern
Europe, Pampers Feel `n Learn, and Charmin Mega-Roll.
Operating earnings increased 10 percent to $3.06 billion driven by volume
growth, pricing, and scale leverage on overhead expenses. These benefits were
partially offset by higher commodity prices and costs associated with Hurricane
Katrina. Hurricane Katrina had a negative impact of approximately two percent on
the company's operating earnings growth due primarily to disruption of the
coffee business, write-offs of damaged inventory and physical assets, and
clean-up and repair costs.
Net earnings increased four percent to $2.03 billion. Net earnings growth
trailed operating earnings growth as a result of the prior year impact of the
sale of the Juice business and higher interest expense from the previously
announced $18 to $22 billion share repurchase program. Share repurchase activity
totaled $5.55 billion of P&G stock during the quarter, bringing cumulative
repurchases under the program to $8.57 billion.
Diluted net earnings per share were $0.77, an increase of 10 percent,
in-line with operating earnings growth. The impact of accelerated share
repurchases, net of associated interest and Gillette acquisition expenses, was
neutral on earnings per share for the quarter.
KEY FINANCIAL HIGHLIGHTS
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o Gross margin was 20 basis points lower than the prior year as higher energy
and material costs were largely offset by fixed cost leverage from volume
growth, cost savings efforts and pricing. Higher commodity costs hurt gross
margins by over 100 basis points.
o Selling, general and administrative expenses (SG&A) increased six percent
year-over-year, but decreased as a percentage of net sales by 60 basis
points. This was primarily driven by strong sales growth that was well
ahead of the company's long-term target and outpaced the increase in SG&A
spending.
o The company's operating cash flow for the quarter was $2.17 billion, an
increase of 14 percent compared to the base period. The improvement was
driven by solid earnings growth and the timing of tax payments versus the
prior year. Free cash flow, defined as operating cash flow less capital
spending, was $1.77 billion. Free cash flow productivity was 87%.
BUSINESS SEGMENT DISCUSSION
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The following provides perspective on the company's July - September
results by business segment.
BEAUTY
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o The beauty business delivered strong volume, sales and earnings growth.
Unit volume increased seven percent, led by growth in developing markets.
Growth was led by hair care, skin care, and feminine care. The hair care
business was driven by double digit growth on Pantene, Head & Shoulders and
Rejoice. Skin care and feminine care both delivered strong volume growth
behind double digit growth on Olay, Always, and Naturella. Net sales
increased seven percent to $4.99 billion. Foreign exchange added one
percent to sales which was offset by mix effects of negative one percent
due to strong developing market growth. Net earnings increased 16 percent
to $783 million driven by strong top-line growth, scale benefits and
savings from the Wella integration. This was partially offset by increased
marketing spending behind new product launches such as Lacoste Essentials,
Always Cottony Soft, Naturella expansion in Central and Eastern Europe,
Pantene Color Expressions and Olay Quench Hand & Body lotion.
FAMILY HEALTH
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o Health care delivered a very strong quarter of double digit volume, sales
and earnings growth. Unit volume increased 11 percent behind the continued
success of Prilosec OTC, Actonel and oral care. Prilosec OTC volume was up
more than double the prior year level, largely driven by accelerated sales
ahead of the mid-September price increase as well as strong value share
growth versus the prior year when the product was on allocation. Health
care net sales increased 13 percent to $2.08 billion. The carryover impact
of pricing actions taken in previous periods in pharmaceuticals & personal
health and in pet health & nutrition added one percent to sales growth.
Favorable exchange rates also contributed one percent to sales growth. Net
earnings increased 37 percent to $336 million. The net earnings increase
resulted from strong volume growth, product mix benefits, and a favorable
base period comparison.
o Baby care and family care delivered solid top-line results. Unit volume
increased five percent with balanced growth on both businesses. Volume
growth was driven behind initiatives such as Charmin Mega-Roll and Pampers
Baby Stages of Development. Net sales increased five percent to $3.00
billion including a positive foreign exchange impact of one percent.
Pricing added one percent to sales growth. Mix reduced sales growth by two
percent primarily behind rapid growth in developing markets and mid-tier
products such as Bounty Basic. Earnings increased four percent to $320
million driven by volume growth. The benefits of cost savings efforts and
pricing were offset by higher commodity costs and increases in
direct-to-consumer marketing investments in baby care.
HOUSEHOLD CARE
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o The fabric and home care business posted strong top and bottom-line growth
for the quarter. Volume increased eight percent behind growth on Tide,
Ariel, Downy, and Dawn. Growth was driven by new initiatives that began
shipping this quarter, such as Tide with Febreze and Dawn Direct Foam, as
well as the incremental benefit of prior year initiatives such as Tide
Coldwater, Tide with a Touch of Downy, Ariel Ion Power Gel, Dawn Bleach
Alternative and Downy Simple Pleasures. Net sales increased 11 percent to
$4.22 billion including a one percent benefit from favorable foreign
exchange. The benefit of prior price increases helped to offset rising
commodity costs and increased sales by two percent. Net earnings increased
10 percent to $641 million behind the impacts of volume growth, pricing,
ongoing savings programs, and foreign exchange gains from developing market
currencies. These benefits were partially offset by rising commodity
prices.
o Snacks and coffee results were heavily impacted by Hurricane Katrina. Unit
volume declined seven percent and sales were down five percent to $706
million due to the disruption of the coffee business caused by Hurricane
Katrina. Coffee price increases taken last fiscal year in response to
higher bean costs added five percent to sales growth. Mix effects reduced
sales by three percent. Net earnings were $73 million, down six percent
driven primarily by the business disruption and other damages associated
with Hurricane Katrina.
FISCAL YEAR AND OCTOBER - DECEMBER QUARTER GUIDANCE
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For the 2006 fiscal year, the company expects net sales to grow 17 to 19
percent. This includes 14 to 15 percent growth resulting from acquisitions and
divestitures. Foreign exchange rates are expected to have a negative impact on
sales growth of about two percent. Pricing and mix are expected to contribute
about one percent to sales growth. Organic sales, which exclude the impacts of
acquisitions, divestitures, and foreign exchange, are expected to grow five to
six percent. This is at the top end of the company's previous guidance. The
company confirmed its previous earnings per share guidance for the fiscal year
excluding Gillette despite the impact of the hurricanes and higher energy and
commodity costs. The dilution impact from the Gillette acquisition on earnings
per share is expected to be $0.20 to $0.26 for the fiscal year, consistent with
the company's previous guidance. This includes one time items which are expected
to be nine to 12 cents per share. In total, earnings per share are expected to
be $2.54 to $2.60 for the fiscal year. This includes the impact of expensing
stock options, which the company expects will be about 11 cents per share
including Gillette.
For the October to December quarter, the company expects net sales growth
of 23 to 26 percent. This includes 20 to 21 percent growth from acquisitions and
divestitures. Foreign exchange rates are expected to have a negative impact on
sales growth of about two percent. Pricing and mix are expected to contribute
one to two percent to sales growth. Organic sales, which exclude the impacts of
acquisitions, divestitures, and foreign exchange, are expected to grow five to
seven percent. Earnings per share including Gillette are expected to be in the
range of $0.66 to $0.69 for the quarter. This includes the impact of expensing
stock options, which the company expects will be about two cents per share
including Gillette. Within this, Gillette dilution is expected to be $0.09 to
$0.12 per share.
FORWARD LOOKING STATEMENTS
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All statements, other than statements of historical fact included in this
release, are forward-looking statements, as that term is defined in the Private
Securities Litigation Reform Act of 1995. In addition to the risks and
uncertainties noted in this release, there are certain factors that could cause
actual results to differ materially from those anticipated by some of the
statements made. These include: (1) the ability to achieve business plans,
including with respect to lower income consumers and growing existing sales and
volume profitably despite high levels of competitive activity, especially with
respect to the product categories and geographical markets (including developing
markets) in which the Company has chosen to focus; (2) the ability to
successfully execute, manage and integrate key acquisitions and mergers,
including (i) the Domination and Profit Transfer Agreement with Wella, and (ii)
the Company's merger with The Gillette Company, and to achieve the cost and
growth synergies in accordance with the stated goals of the Gillette
transaction; (3) the ability to manage and maintain key customer relationships;
(4) the ability to maintain key manufacturing and supply sources (including sole
supplier and plant manufacturing sources); (5) the ability to successfully
manage regulatory, tax and legal matters (including product liability, patent,
and other intellectual property matters), and to resolve pending matters within
current estimates; (6) the ability to successfully implement, achieve and
sustain cost improvement plans in manufacturing and overhead areas, including
the Company's outsourcing projects; (7) the ability to successfully manage
currency (including currency issues in volatile countries), debt (including debt
related to the Company's announced plan to repurchase shares of the Company's
stock), interest rate and certain commodity cost exposures; (8) the ability to
manage the continued global political and/or economic uncertainty and
disruptions, especially in the Company's significant geographical markets, as
well as any political and/or economic uncertainty and disruptions due to
terrorist activities; (9) the ability to successfully manage competitive
factors, including prices, promotional incentives and trade terms for products;
(10) the ability to obtain patents and respond to technological advances
attained by competitors and patents granted to competitors; (11) the ability to
successfully manage increases in the prices of raw materials used to make the
Company's products; (12) the ability to stay close to consumers in an era of
increased media fragmentation; and (13) the ability to stay on the leading edge
of innovation. 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
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Three billion times a day, P&G brands touch the lives of people around the
world. The company has one of the strongest portfolios of trusted, quality,
leadership brands, including Pampers(R), Tide(R), Ariel(R), Always(R),
Whisper(R), Pantene(R), Mach3(R), Bounty(R), Dawn(R), Pringles(R), Folgers(R),
Charmin(R), Downy(R), Lenor(R), Iams(R), Crest(R), Oral-B(R), Actonel(R),
Duracell(R), Olay(R), Head & Shoulders(R), Wella, Gillette(R), and Braun. The
P&G community consists of almost 140,000 employees working in over 80 countries
worldwide. Please visit http://www.pg.com for the latest news and in-depth
information about P&G and its brands.
# # #
P&G MEDIA CONTACT:
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In the US: 1-866-PROCTER or 1-866-776-2837
International: +1-513-945-9087
P&G INVESTOR RELATIONS CONTACT:
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Chris Peterson - (513) 983-2414
THE PROCTER & GAMBLE COMPANY
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EXHIBIT 1: NON-GAAP MEASURES
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In accordance with the SEC's Regulation G, the following provides
definitions of the non-GAAP measures used in the earnings release and the
reconciliation to the most closely related GAAP measure.
ORGANIC SALES GROWTH. Organic sales growth is a non-GAAP measure of sales
growth excluding the impacts of acquisitions, divestitures and foreign exchange
from year-over-year comparisons. We believe this provides investors with a more
complete understanding of underlying sales trends by providing sales growth on a
consistent basis. The reconciliation of reported sales growth to organic sales
growth:
Total Sales Growth 8%
Less: Foreign Exchange Impact 1%
Less: Acquisition/Divestiture Impact -1%
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Organic Sales Growth 8%
OTHER MEASURES
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FREE CASH FLOW. Free cash flow is defined as operating cash flow less
capital spending. We view free cash flow as an important measure because it is
one factor in determining the amount of cash available for dividends and
discretionary investment. Free cash flow is also one of the measures used to
evaluate senior management and is a factor in determining their at-risk
compensation.
FREE CASH FLOW PRODUCTIVITY. Free cash flow productivity is defined as the
ratio of free cash flow to net earnings. The company's long-term target is to
generate free cash at or above 90 percent of net earnings. Free cash flow is
also one of the measures used to evaluate senior management.
The reconciliation of free cash flow and free cash flow productivity is
provided below:
Operating Capital Free Net Free Cash
($MM) Cash Flow Spending Cash Flow Earnings Flow Productivity
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Jul-Sep'04 1,912 413 1,499 1,942 77%
Jul-Sep'05 2,171 401 1,770 2,029 87%
EARNINGS PER SHARE EXCLUDING PRIOR YEAR DIVESTITURE GAINS. This is the EPS
growth in the September 2005 quarter relative to the September 2004 quarter,
excluding the impact of divestiture gains - namely the juice divestiture gain
which was recorded in the base period. This measure is provided in order to give
perspective on the company's EPS growth excluding the impact of the gain in the
base period. The reconciliation of EPS growth and EPS excluding prior year
divestiture gains growth:
Reported July - September 2004 EPS: $0.70
Less: July - September 2004 Divestiture Gain: $0.03
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July - September 2004 EPS Excluding Divestiture Gain: $0.67
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per Share Amounts)
Consolidated Earnings Information
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JAS QUARTER
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JAS 05 JAS 04 % CHG
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NET SALES $ 14,793 $ 13,744 8 %
COST OF PRODUCTS SOLD 7,159 6,623 8 %
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GROSS MARGIN 7,634 7,121 7 %
SELLING, GENERAL & ADMINISTRATIVE EXPENSE 4,577 4,332 6 %
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OPERATING INCOME 3,057 2,789 10 %
TOTAL INTEREST EXPENSE 219 181
OTHER NON-OPERATING INCOME, NET 74 182
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EARNINGS BEFORE INCOME TAXES 2,912 2,790 4 %
INCOME TAXES 883 848
NET EARNINGS 2,029 1,942 4 %
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EFFECTIVE TAX RATE 30.3 % 30.4 %
PER COMMON SHARE:
BASIC NET EARNINGS $ 0.82 $ 0.75 9 %
DILUTED NET EARNINGS $ 0.77 $ 0.70 10 %
DIVIDENDS $ 0.28 $ 0.25
AVERAGE DILUTED SHARES OUTSTANDING 2,649.7 2,766.1
COMPARISONS AS A % OF NET SALES
- ------------------------------- Basis Pt Chg
COST OF PRODUCTS SOLD 48.4 % 48.2 %
GROSS MARGIN 51.6 % 51.8 % (20)
SELLING, GENERAL & ADMINISTRATIVE EXPENSE 30.9 % 31.5 % (60)
OPERATING MARGIN 20.7 % 20.3 % 40
EARNINGS BEFORE INCOME TAXES 19.7 % 20.3 %
NET EARNINGS 13.7 % 14.1 % (40)
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions)
Consolidated Earnings Information
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Three Months Ended September 30, 2005
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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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BEAUTY $ 4,989 7% $ 1,078 10% $ 783 16%
HEALTH CARE 2,083 13% 501 39% 336 37%
BABY CARE AND FAMILY CARE 2,999 5% 510 2% 320 4%
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FAMILY HEALTH 5,082 8% 1,011 17% 656 18%
FABRIC CARE AND HOME CARE 4,215 11% 963 10% 641 10%
SNACKS AND COFFEE 706 -5% 108 -10% 73 -6%
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HOUSEHOLD CARE 4,921 8% 1,071 7% 714 8%
TOTAL BUSINESS SEGMENT 14,992 8% 3,160 11% 2,153 14%
CORPORATE (199) N/A (248) N/A (124) N/A
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TOTAL COMPANY 14,793 8% 2,912 4% 2,029 4%
JULY - SEPTEMBER NET SALES INFORMATION
(Percent Change vs. Year Ago)
Volume Volume
With Without
Acquisitions/ Acquisitions/ Total Total Impact
Divestitures Divestitures FX Price Mix/Other Impact Ex-FX
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BEAUTY 7% 7% 1% 0% -1% 7% 6%
FAMILY HEALTH
HEALTH CARE 11% 11% 1% 1% 0% 13% 12%
BABY CARE AND FAMILY CARE 5% 6% 1% 1% -2% 5% 4%
HOUSEHOLD CARE
FABRIC CARE AND HOME CARE 8% 8% 1% 2% 0% 11% 10%
SNACKS AND COFFEE -7% -7% 0% 5% -3% -5% -5%
TOTAL COMPANY 6% 7% 1% 1% 0% 8% 7%
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions)
Consolidated Cash Flows Information
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Three Months Ended September 30
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2005 2004
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BEGINNING CASH 6,389 4,232
OPERATING ACTIVITIES
NET EARNINGS 2,029 1,942
DEPRECIATION AND AMORTIZATION 448 480
SHARE BASED COMPENSATION EXPENSE 95 122
DEFERRED INCOME TAXES 284 145
CHANGES IN:
ACCOUNTS RECEIVABLE (539) (377)
INVENTORIES (149) (326)
ACCOUNTS PAYABLE, ACCRUED AND OTHER LIABILITIES (243) 57
OTHER OPERATING ASSETS & LIABILITIES 175 (112)
OTHER 71 (19)
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TOTAL OPERATING ACTIVITIES 2,171 1,912
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INVESTING ACTIVITIES
CAPITAL EXPENDITURES (401) (413)
PROCEEDS FROM ASSET SALES 26 366
ACQUISITIONS, NET OF CASH ACQUIRED (1,178) (335)
CHANGE IN INVESTMENT SECURITIES (17) (216)
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TOTAL INVESTMENT ACTIVITIES (1,570) (598)
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FINANCING ACTIVITIES
DIVIDENDS TO SHAREHOLDERS (727) (685)
CHANGE IN SHORT-TERM DEBT (1,230) (2,429)
ADDITIONS TO LONG TERM DEBT 8,612 2,996
REDUCTION OF LONG TERM DEBT (1,858) (130)
PROCEEDS FROM THE EXERCISE OF STOCK OPTIONS & EXCESS TAX BENEFITS 142 105
TREASURY PURCHASES (5,555) (622)
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TOTAL FINANCING ACTIVITIES (616) (765)
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EXCHANGE EFFECT ON CASH (64) 59
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CHANGE IN CASH AND CASH EQUIVALENTS (79) 608
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ENDING CASH 6,310 4,840
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THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions)
Consolidated Balance Sheet Information
September 30, 2005 June 30, 2004
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CASH AND CASH EQUIVALENTS $ 6,310 $ 6,389
INVESTMENTS SECURITIES 1,749 1,744
ACCOUNTS RECEIVABLE 4,690 4,185
TOTAL INVENTORIES 5,161 5,006
OTHER 2,654 3,005
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TOTAL CURRENT ASSETS 20,564 20,329
NET PROPERTY, PLANT AND EQUIPMENT 14,256 14,332
NET GOODWILL AND OTHER INTANGIBLE ASSETS 24,228 24,163
OTHER NON-CURRENT ASSETS 2,858 2,703
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TOTAL ASSETS $ 61,906 $ 61,527
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ACCOUNTS PAYABLE $ 3,423 $ 3,802
ACCRUED AND OTHER LIABILITIES 6,247 7,531
TAXES PAYABLE 2,635 2,265
DEBT DUE WITHIN ONE YEAR 8,749 11,441
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TOTAL CURRENT LIABILITIES 21,054 25,039
LONG-TERM DEBT 21,046 12,887
OTHER 5,273 5,126
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TOTAL LIABILITIES 47,373 43,052
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TOTAL SHAREHOLDERS' EQUITY 14,533 18,475
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 61,906 $ 61,527
==================== ====================