01—Abstract
Summary
Summary of the 10-Q filed January 27, 2012. Cited figures are marked; the original filing is the authoritative source.
Procter & Gamble's (PG) third quarter of fiscal year 2012 reported a significant impact from goodwill and intangible asset impairment charges totaling $1.554 billiona before tax.
These charges, primarily related to the Appliances and Salon Professional businesses, led to a substantial decrease in net earnings attributable to Procter & Gamble, which fell by 49% to $1.69 billionb for the quarter and by 27% to $4.71 billion for the six-month period. Despite these non-core charges, the company reported a 4% increase in net sales for the quarter and a 6% increase for the six-month period, driven by price increases and a modest volume growth of 1% for both periods. Key operational challenges included rising commodity costs, which pressured gross margins, and unfavorable product mix, particularly from growth in developing regions and mid-tier products.
While the company's organic sales showed resilience, increasing by 4% for both periods, the significant impairment charges and margin pressures overshadowed top-line growth. Investors should note the continued focus on cost savings and pricing actions to offset inflationary pressures. The company also provided updates on ongoing European competition law investigations, with an accrued liability of $335 millionc.
Cash flow from operations remained robust, although free cash flow productivity was 78%d for the six-month period, impacted by lower net earnings. The company continued its capital allocation strategy through dividends and share repurchases. Management's outlook highlights the competitive environment and the importance of innovation, cost management, and navigating global economic uncertainties.
02—Key points
Key Highlights
- Significant non-cash goodwill and intangible asset impairment charges of $1.554 billion ($1.481 billion after tax) impacted reported earnings.
- Net earnings attributable to Procter & Gamble decreased by 49% year-over-year to $1.69 billion for the quarter and by 27% to $4.71 billion for the six-month period.
- Net sales increased by 4% to $22.1 billion for the quarter and by 6% to $44.1 billion for the six-month period.
- Gross margin contracted by 210 basis points for the quarter and 220 basis points for the six-month period, primarily due to higher commodity and energy costs.
- Organic sales grew by 4% for both the quarter and the six-month period, indicating underlying brand strength despite broader earnings pressures.
- Operating cash flow for the six months was $5.5 billion, an increase of 2% year-over-year, but free cash flow productivity was 78%.
- The company accrued $335 million for liabilities related to European competition law violations.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2012, Procter & Gamble Co kept $0.08.
- Revenue$21.74B100.0%
- Cost of revenue−$10.85B49.9%
- Gross profit$10.89B50.1%
- Operating costs−$8.21B37.8%
- Operating income$2.68B12.3%
- Interest, other & tax−$990.0M4.6%
- Net income$1.69B7.8%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2012filed January 27, 2012Financial Statements
Q2 FY2012 against Q2 FY2011
| Line item | Q2 FY2012Q2 FY2011 | Change |
|---|---|---|
| Revenue | $21.74B$20.98B | +3.7% |
| Cost of Revenue | $10.85B$10.29B | +5.5% |
| Gross Profit | $10.89B$10.69B | +1.9% |
| SG&A Expenses | $6.66B$6.80B | −2.1% |
| Operating Income | $2.68B$4.19B | −36.0% |
| Interest Expense | $201.00M$209.00M | −3.8% |
| Net Income | $1.69B$3.33B | −49.3% |
| EPS (Basic) | $0.59$1.17 | −49.6% |
| EPS (Diluted) | $0.57$1.11 | −48.6% |
| Shares Outstanding (Diluted) | 2.95B3.00B | −1.7% |
05—Questions
Frequently Asked Questions
What were the primary reasons for the significant decrease in net earnings?
The substantial decrease in net earnings was primarily driven by $1.554 billion in non-cash goodwill and intangible asset impairment charges related to the Appliances and Salon Professional businesses. Additionally, higher commodity costs negatively impacted gross margins.
How did the company's sales performance fare, and what were the key drivers?
Net sales saw an increase of 4% for the quarter and 6% for the six-month period. This growth was driven by price increases (4%) which offset higher commodity costs, and a modest 1% increase in unit volume. Organic sales, excluding currency, acquisitions, and divestitures, also grew by 4% for both periods, indicating underlying business strength.
What is the company's outlook on its financial condition and cash generation?
The company generated $5.5 billion in operating cash flow for the six months, a 2% increase year-over-year. However, free cash flow productivity was 78% for the same period, impacted by the lower net earnings. Management anticipates supporting short-term liquidity and operating needs through cash generated from operations and has access to credit facilities if needed. The company also continues to return value to shareholders through dividends and share repurchases.
Are there any significant legal or regulatory issues impacting the company?
Procter & Gamble has accrued $335 million for liabilities related to ongoing investigations into potential competition law violations in Europe. While the company believes these accrued amounts are adequate for some matters, the ultimate resolution of others remains uncertain. Management believes that aside from these accrued amounts, the ultimate resolution of other litigation and claims will not materially affect the company's financial position, results of operations, or cash flows.
06—Continue