01—Abstract
Summary
Summary of the 10-Q filed October 30, 2008. Cited figures are marked; the original filing is the authoritative source.
Procter & Gamble (PG) reported strong top-line growth for the first quarter of fiscal year 2009, with net sales increasing by 9% to $22.0 billiona, driven by a combination of volume increases and price hikes, alongside a favorable foreign exchange impact.
Organic sales, excluding currency fluctuations and the effects of acquisitions/divestitures, grew by a solid 5%. Despite increased net sales, gross margin experienced a decline of 240 basis points due to rising commodity costs, which partially offset gains from pricing and cost-saving initiatives. Net earnings rose by 9% to $3.3 billionb, translating to a 12% increase in diluted earnings per share to $1.03, benefiting from share repurchases.
The company's financial condition remains robust, with operating cash flow at $3.3 billionc. However, a significant increase in short-term debt to $21.1 billion, primarily to fund share repurchases, has resulted in current liabilities exceeding current assets by $13.2 billion, a notable shift from the prior quarter. The company is also navigating a challenging regulatory environment, particularly concerning competition law investigations in the European Union, the ultimate financial impact of which remains uncertain but could be material.
02—Key points
Key Highlights
- Net sales increased 9% to $22.0 billion, with organic sales up 5%, indicating broad-based underlying demand.
- Diluted earnings per share grew 12% to $1.03, outpacing net earnings growth due to share repurchase activities.
- Gross margin decreased by 240 basis points due to higher commodity costs, despite price increases and cost savings.
- Operating cash flow remained strong at $3.3 billion, a 1% increase year-over-year.
- Significant increase in short-term debt to $21.1 billion, impacting working capital and liquidity position.
- The company is facing ongoing investigations into potential competition law violations in the European Union, with potential for material financial impact.
- Share repurchases continued aggressively, with $3.9 billion in treasury stock purchases during the quarter.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2009, Procter & Gamble Co kept $0.16.
- Revenue$20.98B100.0%
- Cost of revenue−$10.56B50.3%
- Gross profit$10.43B49.7%
- Operating costs−$6.04B28.8%
- Operating income$4.39B20.9%
- Interest, other & tax−$1.04B4.9%
- Net income$3.35B16.0%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2009filed October 30, 2008Financial Statements
| Revenue | $20.98B |
| Cost of Revenue | $10.56B |
| Gross Profit | $10.43B |
| SG&A Expenses | $6.04B |
| Operating Income | $4.39B |
| Interest Expense | $339.00M |
| Net Income | $3.35B |
| EPS (Basic) | $1.10 |
| EPS (Diluted) | $1.03 |
| Shares Outstanding (Diluted) | 3.24B |
05—Questions
Frequently Asked Questions
What drove the net sales growth in the quarter?
Net sales growth of 9% to $22.0 billion was driven by a 2% increase in unit volume, a 3% contribution from price increases, and a 5% favorable impact from foreign exchange. Key brands like Head & Shoulders, Gain, Gillette Fusion, and Cover Girl showed strong performance.
What is the impact of rising commodity costs on P&G's profitability?
Rising commodity costs significantly impacted gross margin, reducing it by approximately 400 basis points. While price increases and manufacturing cost savings projects helped to partially offset this, the overall gross margin for the quarter decreased by 240 basis points compared to the prior year.
How is P&G managing its liquidity given the increase in short-term debt?
P&G's short-term debt increased substantially to $21.1 billion, leading to current liabilities exceeding current assets. The company states it anticipates supporting its liquidity needs through cash generated from operations and has access to credit lines with financial institutions. However, they acknowledge that a severe worsening of the credit crisis could impair their ability to fund discretionary spending, such as share buybacks.
What is the status of the European competition law investigations?
The company is cooperating with ongoing investigations into potential competition law violations in the European Union. While no formal claims have been made yet, P&G acknowledges that if violations are found, substantial fines could be imposed, potentially materially impacting their income statement and cash flows. Internal investigations have identified some violations in certain European countries, and appropriate actions are being taken.
06—Continue