01—Abstract
Summary
Summary of the 10-Q filed October 28, 2010. Cited figures are marked; the original filing is the authoritative source.
Procter & Gamble (PG) reported its fiscal first-quarter results for the period ending September 30, 2010, showing a modest increase in net sales to $20.1 billiona, a 2% rise year-over-year.
This growth was primarily driven by an 8% increase in unit volume, indicating strong consumer demand across many of its product categories, especially Fabric Care & Home Care and Baby Care & Family Care. However, net earnings saw a decline of 7% to $3.1 billionb, largely due to the absence of the previously divested pharmaceuticals business, which significantly impacted the prior year's comparative results. Despite challenges like unfavorable foreign exchange rates and price reductions, the company demonstrated resilience.
Diluted net earnings per share from continuing operations saw a healthy 5% increase to $1.02c, outperforming net earnings growth due to active share repurchase programs. While operating cash flow decreased due to higher working capital needs, free cash flow remained substantial at $1.9 billion. Investors should note the ongoing legal proceedings in Europe concerning competition law violations, for which the company has reserved $275 million, although the ultimate impact remains uncertain and could be material.
02—Key points
Key Highlights
- Net sales increased 2% to $20.1 billion, driven by an 8% rise in unit volume.
- Organic sales grew 4%, excluding the impact of acquisitions, divestitures, and foreign exchange.
- Net earnings declined 7% to $3.1 billion primarily due to the prior year's inclusion of divested pharmaceutical business results.
- Diluted EPS from continuing operations increased 5% to $1.02, outperforming net earnings growth due to share repurchases.
- Operating cash flow decreased significantly to $2.5 billion, impacted by higher working capital, but free cash flow was $1.9 billion.
- The company has established a reserve of $275 million for potential fines related to European competition law investigations.
- Significant share repurchase activity continued, with approximately $3 billion in treasury stock purchases during the quarter.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2011, Procter & Gamble Co kept $0.16.
- Revenue$19.78B100.0%
- Cost of revenue−$9.69B49.0%
- Gross profit$10.10B51.0%
- Operating costs−$5.67B28.7%
- Operating income$4.42B22.4%
- Interest, other & tax−$1.34B6.8%
- Net income$3.08B15.6%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2011filed October 28, 2010Financial Statements
Q1 FY2011 against Q1 FY2010
| Line item | Q1 FY2011Q1 FY2010 | Change |
|---|---|---|
| Revenue | $19.78B$19.81B | −0.1% |
| Cost of Revenue | $9.69B$9.40B | +3.1% |
| Gross Profit | $10.10B$10.41B | −3.0% |
| SG&A Expenses | $5.93B$5.96B | −0.5% |
| Operating Income | $4.42B$4.45B | −0.5% |
| Interest Expense | $208.00M$287.00M | −27.5% |
| Net Income | $3.08B$3.31B | −6.8% |
| EPS (Basic) | $1.07$1.11 | −3.6% |
| EPS (Diluted) | $1.02$1.06 | −3.8% |
| Shares Outstanding (Diluted) | 3.03B3.11B | −2.7% |
05—Questions
Frequently Asked Questions
What was the primary driver for the year-over-year decrease in net earnings?
The primary driver for the year-over-year decrease in net earnings was the absence of the net earnings from discontinued operations, specifically the global pharmaceuticals business divested in October 2009. While net earnings from continuing operations saw a slight increase, the loss of the significant contribution from the pharmaceuticals business in the prior year's comparable period led to an overall decline.
How did currency fluctuations and pricing strategies impact sales?
Unfavorable foreign exchange movements reduced net sales by 3%. The company also implemented price reductions, which lowered net sales by 1%, partly offset by price increases in developing regions to counter currency devaluations. Product mix also negatively impacted net sales by 2% due to growth in lower-priced products and developing regions.
What is the company's exposure and provision related to the European competition law investigations?
Procter & Gamble is subject to investigations into potential competition law violations in Europe. The company has identified violations in certain European countries and has taken appropriate actions. As of September 30, 2010, the company has reserved $275 million for potential fines related to these violations. However, it notes that the ultimate resolution could result in fines or costs significantly in excess of the amounts reserved, and the impact could be material to its income statement and cash flows.
How is the company managing its cash flow and liquidity?
The company generated $2.5 billion in operating cash flow but experienced a significant decline compared to the prior year, largely due to an increase in working capital. Free cash flow was $1.9 billion. Financing activities consumed $1.9 billion, primarily for share repurchases ($3.0 billion) and dividends ($1.4 billion), partially funded by issuing $2.4 billion in short-term debt. The company expects to support its liquidity needs through ongoing cash generation and has strong debt ratings for refinancing.
06—Continue