01—Abstract
Summary
Summary of the 10-Q filed January 28, 2010. Cited figures are marked; the original filing is the authoritative source.
Procter & Gamble's (PG) Q2 FY2010 report (ended December 31, 2009) shows a solid performance with a 6% increase in net sales to $21.0 billiona, driven by a 5% rise in unit volume and favorable foreign exchange.
Net earnings from continuing operations grew 12% to $3.1 billionb, reflecting improved gross margins due to lower commodity costs and cost savings, alongside reduced interest expenses. However, diluted net earnings per share decreased by 6% to $1.49, largely influenced by a significant drop in net earnings from discontinued operations. This decline in discontinued operations was primarily due to lower gains from the sale of assets compared to the prior year, particularly the sale of the pharmaceuticals business ($1.5 billion gain) versus the coffee business sale ($2.0 billion gain in the prior year).
The company highlights a 3% increase in organic sales for the six-month period, indicating underlying business strength despite a challenging global economic environment. The report also details a significant charge of $267 millionc related to potential competition law fines in Europe, impacting SG&A expenses. Management continues to focus on driving value through innovation, cost management, and strategic portfolio adjustments, including the completed divestiture of its pharmaceuticals business.
02—Key points
Key Highlights
- Net sales increased by 6% to $21.0 billion for the three months ended December 31, 2009, driven by a 5% increase in unit volume and favorable foreign exchange.
- Net earnings from continuing operations rose by 12% to $3.1 billion, benefiting from a 15% increase in operating income and improved gross margins.
- Diluted net earnings per share decreased by 6% to $1.49, primarily due to a significant decline in net earnings from discontinued operations.
- The company recorded a $267 million charge related to potential competition law fines in Europe, impacting Selling, General & Administrative expenses.
- For the six months ended December 31, 2009, organic sales grew by 3%, demonstrating underlying business strength.
- The divestiture of the global pharmaceuticals business was completed in October 2009, contributing $1.5 billion in after-tax gain to discontinued operations for the quarter.
- Free cash flow for the six-month period was $6.6 billion, with free cash flow productivity at 83%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2010, Procter & Gamble Co kept $0.22.
- Revenue$21.03B100.0%
- Cost of revenue−$9.74B46.3%
- Gross profit$11.29B53.7%
- Operating costs−$6.64B31.6%
- Operating income$4.66B22.1%
- Interest, other & tax$4.0M0.0%
- Net income$4.66B22.2%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2010filed January 28, 2010Financial Statements
Q2 FY2010 against Q2 FY2009
| Line item | Q2 FY2010Q2 FY2009 | Change |
|---|---|---|
| Revenue | $21.03B$19.76B | +6.4% |
| Cost of Revenue | $9.74B$9.80B | −0.6% |
| Gross Profit | $11.29B$9.96B | +13.3% |
| SG&A Expenses | $6.64B$5.91B | +12.3% |
| Operating Income | $4.66B$4.05B | +14.8% |
| Interest Expense | $224.00M$354.00M | −36.7% |
| Net Income | $4.66B$5.00B | −6.9% |
| EPS (Basic) | $1.58$1.68 | −6.0% |
| EPS (Diluted) | $1.49$1.58 | −5.7% |
| Shares Outstanding (Diluted) | 3.12B3.17B | −1.6% |
05—Questions
Frequently Asked Questions
What was the main driver for the increase in net sales during the quarter?
The main drivers for the 6% increase in net sales to $21.0 billion were a 5% increase in unit volume and favorable foreign exchange impacts. Pricing also contributed positively, while product and geographic mix had a negative impact.
Why did diluted net earnings per share decrease despite an increase in net earnings from continuing operations?
Diluted net earnings per share decreased by 6% despite a 12% increase in net earnings from continuing operations primarily because of a significant decline in net earnings from discontinued operations. This was mainly due to lower gains from the sale of assets, such as the pharmaceuticals business, compared to the gains recognized in the prior year from the sale of the coffee business.
What is the nature of the $267 million charge mentioned in the report?
The $267 million charge is related to potential fines for competition law violations in Europe, stemming from ongoing investigations by French and Italian authorities. This charge impacted the company's Selling, General & Administrative expenses.
How is the company managing its international operations and currency risks, especially concerning Venezuela?
The company is exposed to risks from significant international operations, including currency fluctuations. Venezuela was designated as a highly inflationary economy, requiring a change in accounting for its subsidiaries. The government announced a devaluation of the currency, which is expected to reduce future reported sales and earnings, although the impact on organic sales growth is not expected. The company is taking actions to mitigate the effects of devaluation and currency restrictions.
06—Continue