10-QPeriod: Q1 FY2009

PROCTER & GAMBLE Co Quarterly Report for Q1 Ended Sep 30, 2008

Filed October 30, 2008For Securities:PG

Summary

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 billion, 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 billion, 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 billion. 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.

Financial Highlights

28 data points
Beta

Revenue

$20.98B

49.7% Gross Margin

Net Income

$3.35B

16.0% Net Margin

EPS (Diluted)

$1.03

Cash & Equivalents

$4.50B

Free Cash Flow

$2.75B

Financial Statements
Beta
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

Key Highlights

  • 1Net sales increased 9% to $22.0 billion, with organic sales up 5%, indicating broad-based underlying demand.
  • 2Diluted earnings per share grew 12% to $1.03, outpacing net earnings growth due to share repurchase activities.
  • 3Gross margin decreased by 240 basis points due to higher commodity costs, despite price increases and cost savings.
  • 4Operating cash flow remained strong at $3.3 billion, a 1% increase year-over-year.
  • 5Significant increase in short-term debt to $21.1 billion, impacting working capital and liquidity position.
  • 6The company is facing ongoing investigations into potential competition law violations in the European Union, with potential for material financial impact.
  • 7Share repurchases continued aggressively, with $3.9 billion in treasury stock purchases during the quarter.

Frequently Asked Questions

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.

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.

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.

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.