01—Abstract
Summary
Summary of the 10-Q filed October 27, 2011. Cited figures are marked; the original filing is the authoritative source.
Procter & Gamble's Q1 2011 filing (for the quarter ending September 29, 2011) shows a 9% increase in net sales to $21.9 billiona, driven by a 5% favorable foreign exchange impact and 4% organic sales growth.
However, net earnings decreased by 2% to $3.0 billionb, 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.
02—Key points
Key Highlights
- Net sales increased 9% to $21.9 billion, with organic sales growing 4%, indicating underlying business strength.
- Net earnings declined 2% to $3.0 billion, impacted by higher commodity costs which compressed gross margins.
- Diluted EPS increased 1% to $1.03, outpacing net earnings growth due to share repurchase activity.
- Gross margin decreased by 240 basis points to 49.5%, largely due to a 340 basis point impact from increased commodity and energy costs.
- Operating cash flow decreased 12% to $2.2 billion, primarily due to higher working capital needs.
- The company is facing legal proceedings related to competition law violations in Europe, with $283 million accrued as of September 30, 2011.
- Significant foreign exchange benefits (5% increase in net sales) were noted, particularly with developing regions showing mid-single-digit growth.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2012, Procter & Gamble Co kept $0.14.
- Revenue$21.53B100.0%
- Cost of revenue−$10.81B50.2%
- Gross profit$10.72B49.8%
- Operating costs−$6.47B30.1%
- Operating income$4.25B19.7%
- Interest, other & tax−$1.23B5.7%
- Net income$3.02B14.0%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2012filed October 27, 2011Financial Statements
Q1 FY2012 against Q1 FY2011
| Line item | Q1 FY2012Q1 FY2011 | Change |
|---|---|---|
| Revenue | $21.53B$19.78B | +8.8% |
| Cost of Revenue | $10.81B$9.69B | +11.5% |
| Gross Profit | $10.72B$10.10B | +6.2% |
| SG&A Expenses | $6.47B$5.93B | +9.1% |
| Operating Income | $4.25B$4.42B | −4.0% |
| Interest Expense | $207.00M$208.00M | −0.5% |
| Net Income | $3.02B$3.08B | −1.9% |
| EPS (Basic) | $1.08$1.07 | +0.9% |
| EPS (Diluted) | $1.03$1.02 | +1.0% |
| Shares Outstanding (Diluted) | 2.95B3.03B | −2.6% |
05—Questions
Frequently Asked Questions
What is the primary driver of the decrease in net earnings despite sales growth?
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.
How is the company managing currency fluctuations?
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.
What is the status of the legal proceedings related to competition law violations in Europe?
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.
How did the different business segments perform?
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.
06—Continue