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

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.

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.

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