10-QPeriod: Q1 FY2014

PROCTER & GAMBLE Co Quarterly Report for Q1 Ended Sep 30, 2013

Filed October 25, 2013For Securities:PG

Summary

Procter & Gamble's (PG) Q1 2014 results (ended September 29, 2013) show a modest increase in net sales and earnings, driven by higher unit volumes, particularly in developing regions, and a reduction in restructuring charges. While overall net sales grew 2% to $21.2 billion, organic sales (excluding currency, acquisitions, and divestitures) saw a stronger increase of 4%, indicating underlying business momentum. Diluted EPS rose 8% to $1.04, though core EPS saw a slight decrease of 1%. Despite pressures from unfavorable foreign exchange (which reduced net sales by 2%) and a contraction in gross margin due to mix and currency effects, the company managed to improve its operating margin by 50 basis points. Cost management efforts, including a reduction in SG&A expenses driven by lower restructuring spending, contributed positively. The company also reported a significant restructuring program impacting its operations, with over $3.5 billion in pre-tax costs expected over five years. Investors should monitor the impact of ongoing restructuring and FX headwinds on future profitability, alongside the performance of key segments like Fabric Care & Home Care and Baby, Feminine & Family Care, which demonstrated strong volume growth.

Financial Highlights

53 data points
Beta

Revenue

$20.17B

47.6% Gross Margin

Net Income

$3.03B

15.0% Net Margin

EPS (Diluted)

$1.04

Total Assets

$141.13B

Cash & Equivalents

$6.12B

Free Cash Flow

$1.32B

Financial Statements
Beta
Revenue$20.17B
Cost of Revenue$10.57B
Gross Profit$9.60B
SG&A Expenses$6.14B
Operating Income$3.97B
Interest Expense$165.00M
Net Income$3.03B
EPS (Basic)$1.09
EPS (Diluted)$1.04
Shares Outstanding (Basic)2.74B
Shares Outstanding (Diluted)2.92B

Key Highlights

  • 1Net sales increased by 2% to $21.2 billion, with organic sales growing a more robust 4%, indicating underlying demand.
  • 2Diluted Earnings Per Share (EPS) increased by 8% to $1.04, though Core EPS saw a slight decline of 1% to $1.05, influenced by restructuring charges and prior-year legal costs.
  • 3Gross margin contracted by 110 basis points to 49.0% primarily due to unfavorable geographic/product mix and foreign exchange impacts, partially offset by manufacturing cost savings.
  • 4Selling, General & Administrative (SG&A) expenses decreased by 3%, contributing to an improved operating margin of 19.6%, largely driven by reduced restructuring spending.
  • 5The company is executing a significant restructuring program with expected pre-tax costs exceeding $3.5 billion over five years, aiming for substantial annual savings.
  • 6Developing regions showed mid-single-digit volume growth, outperforming developed regions, while Fabric Care & Home Care and Baby, Feminine & Family Care segments exhibited strong mid-to-high single-digit volume increases.
  • 7Foreign exchange negatively impacted net sales by 2% and net earnings by approximately $250 million for the quarter.

Frequently Asked Questions

Net sales increased by 2% to $21.2 billion. This growth was primarily driven by a 4% increase in unit volume, particularly in developing regions and strong performance in the Fabric Care and Home Care and Baby, Feminine and Family Care segments. Organic sales, which exclude currency fluctuations, acquisitions, and divestitures, grew by a stronger 4%, indicating underlying business momentum.

Procter & Gamble is undertaking a significant productivity and cost savings plan, expecting over $3.5 billion in pre-tax restructuring costs from fiscal 2012 through fiscal 2016. For the current quarter, restructuring charges were a significant factor. A reduction in these charges compared to the prior year contributed to a decrease in SG&A expenses and an improvement in net earnings. The company expects substantial annual savings from this program.

Foreign exchange movements had a negative impact during the quarter. Unfavorable currency fluctuations reduced net sales by 2% and are estimated to have negatively impacted net earnings by approximately $250 million. This headwind also contributed to a contraction in gross margin.

The Fabric Care and Home Care and Baby, Feminine and Family Care segments showed strong performance with mid-to-high single-digit volume growth. The Beauty and Grooming segments experienced slight declines in net sales, while Health Care saw a decrease, partly due to product recalls in Pet Care and competitive activity in Oral Care. Developing regions generally showed more robust volume growth than developed regions.