10-QPeriod: Q2 FY2009

PROCTER & GAMBLE Co Quarterly Report for Q2 Ended Dec 31, 2008

Filed February 2, 2009For Securities:PG

Summary

Procter & Gamble's (PG) Q2 2009 filing reveals a mixed financial performance impacted by the global economic downturn. While net sales saw a modest 3% increase to $42.0 billion for the first six months, this was largely driven by price increases as unit volume declined by 1% for the quarter and remained flat year-over-year for the six-month period. The company experienced a significant boost in net earnings, up 32% to $8.4 billion, primarily due to a substantial after-tax gain of $2.0 billion from the divestiture of its Folgers coffee business. Despite the headline earnings increase, the core business faced challenges. Operating income from continuing operations saw a slight decrease, and gross margins were pressured by higher commodity costs, partially offset by pricing actions and cost savings. The company's balance sheet showed a notable increase in cash and cash equivalents, but also a significant rise in debt due within one year. Investors should note the continued impact of foreign exchange headwinds and the ongoing efforts to manage costs in a challenging global economic environment.

Financial Highlights

28 data points
Beta

Revenue

$19.76B

50.4% Gross Margin

Net Income

$5.00B

25.3% Net Margin

EPS (Diluted)

$1.58

Cash & Equivalents

$5.65B

Free Cash Flow

$1.47B

Financial Statements
Beta
Revenue$19.76B
Cost of Revenue$9.80B
Gross Profit$9.96B
SG&A Expenses$5.91B
Operating Income$4.05B
Interest Expense$354.00M
Net Income$5.00B
EPS (Basic)$1.68
EPS (Diluted)$1.58
Shares Outstanding (Diluted)3.17B

Key Highlights

  • 1Net sales for the six months ended December 31, 2008, increased 3% to $42.0 billion, driven by a 4% price increase, while unit volume decreased 1% for the quarter and was flat for the six-month period.
  • 2Net earnings significantly increased by 32% to $8.4 billion, largely attributable to a $2.0 billion after-tax gain from the divestiture of the Folgers coffee business.
  • 3Diluted net earnings per share (EPS) rose 37% to $2.61 for the six-month period, outpacing net earnings growth due to share repurchases and the Folgers transaction.
  • 4Operating cash flow decreased by 20% to $5.6 billion for the six-month period, and free cash flow productivity was 51%.
  • 5The company reported a substantial increase in 'Net Earnings from Discontinued Operations' ($2.04 billion for the quarter, $2.11 billion for the six months) primarily due to the Folgers divestiture gain.
  • 6Goodwill and other intangible assets saw a decrease from $94.0 billion to $89.3 billion, reflecting a reduction primarily in the Snacks and Pet Care segment due to the coffee business divestiture.
  • 7Total current liabilities increased significantly, driven by a substantial rise in 'Debt due within one year' from $13.1 billion to $21.9 billion.

Frequently Asked Questions

The primary driver of the significant increase in net earnings was the after-tax gain of $2.0 billion from the divestiture of the company's Folgers coffee business in November 2008.

The global economic downturn negatively impacted net sales, with the company citing the global economic downturn, credit crisis, and associated currency market volatility as key factors. Net sales for the quarter decreased by 3%, with unit volume also declining. Unfavorable foreign exchange also negatively impacted net sales.

The company acknowledges significant cost pressures, especially from fluctuations in commodity and raw material prices. Higher commodity and energy costs notably impacted gross margins during the period, which the company partially offset through pricing actions and cost savings projects. This is identified as a continued risk for the business.

The company's debt position has shifted, with 'Debt due within one year' increasing substantially from $13.1 billion to $21.9 billion. While long-term debt decreased, the overall current liabilities increased, reflecting a higher reliance on short-term financing.