10-QPeriod: Q2 FY2011

PROCTER & GAMBLE Co Quarterly Report for Q2 Ended Dec 31, 2010

Filed January 28, 2011For Securities:PG

Summary

Procter & Gamble (PG) reported its fiscal second-quarter and year-to-date results for the period ending December 31, 2010. For the quarter, net sales increased 2% to $21.3 billion, driven by a 6% increase in unit volume, though this was partially offset by unfavorable foreign exchange and product mix. Net earnings from continuing operations rose 6% to $3.3 billion, primarily due to a lower effective tax rate and higher net sales, despite a decline in operating margin. For the six months ended December 31, 2010, net sales grew 2% to $41.5 billion, with a 7% volume increase largely countered by foreign exchange, mix, and pricing. Net earnings from continuing operations increased 4% to $6.4 billion. The company saw a significant decrease in overall net earnings (down 19% for the quarter and 19% year-to-date) primarily due to the prior-year gain from the divestiture of its global pharmaceuticals business. Diluted earnings per share from continuing operations saw a positive trend, increasing 10% for the quarter and 8% year-to-date, benefiting from share repurchases.

Financial Highlights

50 data points
Beta

Revenue

$20.98B

51.0% Gross Margin

Net Income

$3.33B

15.9% Net Margin

EPS (Diluted)

$1.11

Total Assets

$134.27B

Cash & Equivalents

$3.25B

Free Cash Flow

$2.19B

Financial Statements
Beta
Revenue$20.98B
Cost of Revenue$10.29B
Gross Profit$10.69B
SG&A Expenses$6.80B
Operating Income$4.19B
Interest Expense$209.00M
Net Income$3.33B
EPS (Basic)$1.17
EPS (Diluted)$1.11
Shares Outstanding (Diluted)3.00B

Key Highlights

  • 1Net sales for the three months ended December 31, 2010, increased by 2% to $21.3 billion, driven by a 6% unit volume increase across most segments.
  • 2Net earnings from continuing operations for the quarter rose 6% to $3.3 billion, aided by a significantly lower effective tax rate (17.9% vs. 29.8%).
  • 3Diluted earnings per share from continuing operations increased 10% to $1.11 for the quarter, outpacing net earnings growth due to share repurchase activity.
  • 4For the six-month period, net sales grew 2% to $41.5 billion with a 7% volume increase, while net earnings from continuing operations were up 4% to $6.4 billion.
  • 5The company recorded a significant reserve of $574 million for potential fines related to ongoing European competition law investigations.
  • 6Operating cash flow for the six months decreased by $2.5 billion to $5.3 billion, impacting free cash flow generation.
  • 7The company continues to return capital to shareholders through dividends ($0.4818 per share for the quarter) and significant share repurchases ($3.5 billion in the quarter).

Frequently Asked Questions

The primary driver for the increase in net sales was a broad-based increase in unit volume across most of P&G's business segments. For the quarter, unit volume grew 6%, and for the six-month period, it grew 7%. This growth was partially offset by unfavorable foreign exchange rates, product mix, and some pricing adjustments.

Net earnings from continuing operations increased due to factors like higher net sales and a significantly lower effective tax rate in the current period. However, overall net earnings decreased substantially because the prior year's results included a large one-time gain from the divestiture of P&G's global pharmaceuticals business. This gain, classified under 'discontinued operations,' was absent in the current reporting periods.

Procter & Gamble is cooperating with ongoing investigations into potential competition law violations in Europe. The company has identified violations in certain European countries and taken appropriate actions. As of December 31, 2010, the company has established reserves totaling $574 million for potential fines related to these matters. Management notes that the ultimate resolution could result in costs exceeding the reserved amounts.

For the six months ended December 31, 2010, operating cash flow was $5.3 billion, a decrease from the prior year, partly due to increased investment in working capital. The company generated $4.1 billion in free cash flow. P&G continues to return capital to shareholders through dividend payments ($0.4818 per share for the quarter) and a robust share repurchase program, with $3.5 billion spent on treasury stock purchases during the quarter.