01—Abstract
Summary
Summary of the 10-K filed August 9, 2016. Cited figures are marked; the original filing is the authoritative source.
Procter & Gamble's (PG) 2016 10-K filing reveals a company in the midst of significant portfolio transformation, aiming to streamline its operations to focus on approximately 65 core brands.
This strategic shift led to a decrease in net sales for the fiscal year ending June 30, 2016, down 8% to $65.3 billiona, partly due to a 6% negative impact from foreign exchange. Despite the top-line decline, the company reported a strong increase in net earnings attributable to Procter & Gamble, up 49% to $10.5 billion. This surge was primarily driven by significant gains from the divestiture of the Batteries business and a large charge in the prior year related to the deconsolidation of its Venezuelan operations.
Core Earnings Per Share (EPS) saw a slight decrease of 2% to $3.67b. Key financial health indicators remained robust, with operating cash flow at $15.4 billion and adjusted free cash flow at $12.1 billion. The company demonstrated a strong commitment to shareholder returns, increasing dividends for the 60th consecutive year and repurchasing $4.0 billion in shares.
Looking ahead, P&G is focused on organic sales growth above market rates, mid-to-high single-digit Core EPS growth, and adjusted free cash flow productivity of 90%c or greater. The divestiture of its Beauty Brands business to Coty Inc. was expected to be completed in October 2016, marking a major milestone in its portfolio optimization strategy.
02—Key points
Key Highlights
- Net sales decreased 8% to $65.3 billion in FY 2016, largely impacted by a 6% unfavorable foreign exchange effect, although organic sales grew by 1% due to pricing actions.
- Net earnings attributable to Procter & Gamble significantly increased by 49% to $10.5 billion, driven by gains from the Batteries business divestiture and the prior year's Venezuela deconsolidation charge.
- Diluted Earnings Per Share (EPS) rose 51% to $3.69, with continuing operations EPS up 23% to $3.49, while Core EPS slightly decreased by 2% to $3.67.
- Operating cash flow was strong at $15.4 billion, and adjusted free cash flow stood at $12.1 billion, with productivity at 115%.
- The company continued its commitment to shareholder returns, increasing dividends for the 60th consecutive year and repurchasing $4.0 billion in shares.
- P&G is strategically streamlining its portfolio, divesting about 100 non-strategic brands to focus on around 65 core brands, with the Beauty Brands divestiture to Coty Inc. anticipated in October 2016.
- The company operates across five segments: Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care, with Fabric & Home Care being the largest segment by net sales.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Procter & Gamble Co kept $0.16.
- Revenue$65.30B100.0%
- Cost of revenue−$32.91B50.4%
- Gross profit$32.39B49.6%
- Operating costs−$18.95B29.0%
- Operating income$13.44B20.6%
- Interest, other & tax−$2.93B4.5%
- Net income$10.51B16.1%
04—Financials
Financial Highlights
Figures from 10-KFY2016filed August 9, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $65.30B$70.75B | −7.7% |
| Cost of Revenue | $32.91B$37.06B | −11.2% |
| Gross Profit | $32.39B$33.69B | −3.9% |
| R&D Expenses | $1.90B$2.00B | −5.0% |
| SG&A Expenses | $18.95B$20.62B | −8.1% |
| Operating Income | $13.44B$11.05B | +21.6% |
| Interest Expense | $579.00M$626.00M | −7.5% |
| Net Income | $10.51B$7.04B | +49.3% |
| EPS (Basic) | $3.80$2.50 | +52.0% |
| EPS (Diluted) | $3.69$2.44 | +51.2% |
| Shares Outstanding (Basic) | 2.70B2.71B | −0.5% |
| Shares Outstanding (Diluted) | 2.84B2.88B | −1.4% |
05—Questions
Frequently Asked Questions
What is the company's overall financial performance for fiscal year 2016?
For the fiscal year ended June 30, 2016, Procter & Gamble reported a net sales decrease of 8% to $65.3 billion, primarily due to unfavorable foreign exchange rates and volume declines in several segments. However, net earnings attributable to Procter & Gamble saw a significant increase of 49% to $10.5 billion, largely driven by divestiture gains and the prior year's Venezuelan deconsolidation charge. Operating cash flow remained strong at $15.4 billion.
What are the key strategic initiatives P&G is undertaking?
Procter & Gamble is undergoing a significant portfolio transformation, aiming to streamline its business by divesting approximately 100 non-strategic brands to focus on around 65 core brands where it holds leading market positions. The divestiture of the Beauty Brands business to Coty Inc. was a major step in this strategy, expected to close in October 2016. The company's strategic focus is on winning with consumers through innovation, productivity improvements, and delivering shareholder value.
How did the company's different business segments perform?
P&G's five reportable segments are Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care. Fabric & Home Care was the largest segment by net sales ($20.7 billion). Most segments experienced sales declines driven by foreign exchange and volume decreases, although some, like Health Care and Fabric & Home Care, saw net earnings growth despite lower sales due to improved margins and cost savings. The Beauty segment experienced a significant sales decrease partly due to brand divestitures.
What is the company's approach to shareholder returns?
P&G maintains a strong commitment to returning value to shareholders. In fiscal year 2016, the company increased its dividend for the 60th consecutive year and repurchased approximately $4.0 billion of its own shares. This reflects the company's confidence in its ability to generate substantial cash flow to support both dividends and share repurchases.
06—Continue