10-QPeriod: Q1 FY2012

PROCTER & GAMBLE Co Quarterly Report for Q1 Ended Sep 30, 2011

Filed October 27, 2011For Securities:PG

Summary

Procter & Gamble's Q1 2011 filing (for the quarter ending September 29, 2011) shows a 9% increase in net sales to $21.9 billion, driven by a 5% favorable foreign exchange impact and 4% organic sales growth. However, net earnings decreased by 2% to $3.0 billion, primarily due to a 14% increase in the cost of goods sold, leading to a 4% contraction in gross profit and a 240 basis point decrease in gross margin. This margin compression was mainly attributed to higher commodity and energy costs, which offset pricing increases and manufacturing cost savings. Despite a 1% increase in diluted EPS to $1.03, driven by share repurchases, investors should note the impact of rising input costs on profitability and the segment-level performance variations, with Fabric Care and Home Care, and Beauty segments showing significant declines in net earnings.

Financial Highlights

50 data points
Beta

Revenue

$21.53B

49.8% Gross Margin

Net Income

$3.02B

14.0% Net Margin

EPS (Diluted)

$1.03

Total Assets

$136.62B

Cash & Equivalents

$3.58B

Free Cash Flow

$1.33B

Financial Statements
Beta
Revenue$21.53B
Cost of Revenue$10.81B
Gross Profit$10.72B
SG&A Expenses$6.47B
Operating Income$4.25B
Interest Expense$207.00M
Net Income$3.02B
EPS (Basic)$1.08
EPS (Diluted)$1.03
Shares Outstanding (Diluted)2.95B

Key Highlights

  • 1Net sales increased 9% to $21.9 billion, with organic sales growing 4%, indicating underlying business strength.
  • 2Net earnings declined 2% to $3.0 billion, impacted by higher commodity costs which compressed gross margins.
  • 3Diluted EPS increased 1% to $1.03, outpacing net earnings growth due to share repurchase activity.
  • 4Gross margin decreased by 240 basis points to 49.5%, largely due to a 340 basis point impact from increased commodity and energy costs.
  • 5Operating cash flow decreased 12% to $2.2 billion, primarily due to higher working capital needs.
  • 6The company is facing legal proceedings related to competition law violations in Europe, with $283 million accrued as of September 30, 2011.
  • 7Significant foreign exchange benefits (5% increase in net sales) were noted, particularly with developing regions showing mid-single-digit growth.

Frequently Asked Questions

The primary driver for the decrease in net earnings was the significant increase in commodity and energy costs, which led to a contraction in gross margins. While the company implemented price increases, they were not sufficient to fully offset the rise in input costs.

The company benefited from favorable foreign exchange movements during the quarter, which contributed 5% to net sales growth. However, it also faces currency risks, particularly in highly inflationary economies like Venezuela, where it has implemented specific strategies to manage currency controls and potential devaluations.

Procter & Gamble has accrued $283 million as of September 30, 2011, for competition law violations in Europe. While the company has taken appropriate actions and resolved some matters, investigations are ongoing in several countries, and there remains uncertainty regarding potential fines, though the company does not expect incremental losses to materially impact its financial statements beyond the amounts reserved.

Performance varied across segments. Baby Care and Family Care, and Snacks and Pet Care showed strong net earnings growth. However, Fabric Care and Home Care and Beauty segments experienced decreases in net earnings, impacted by margin pressures and other segment-specific factors, despite sales growth in some instances.