10-QPeriod: Q3 FY2014

PROCTER & GAMBLE Co Quarterly Report for Q3 Ended Mar 31, 2014

Filed April 23, 2014For Securities:PG

Summary

Procter & Gamble's (PG) Q3 FY14 report shows resilience with flat net sales year-over-year, reaching $20.6 billion. Despite a challenging foreign exchange environment, the company achieved a 3% increase in organic sales driven by a 3% rise in unit volume across most segments, with Fabric Care & Home Care showing particularly strong volume growth. While gross margins saw pressure due to unfavorable foreign exchange and product mix, this was partially offset by manufacturing cost savings. Significant reductions in Selling, General & Administrative (SG&A) expenses, largely from marketing spend cuts, contributed to a slight increase in operating income and a 2% rise in net earnings attributable to P&G shareholders, reaching $2.6 billion. For the nine-month period, net sales grew 1% to $64.0 billion, with organic sales up 3% and unit volume up 4%. Net earnings attributable to P&G declined 4% year-over-year to $9.1 billion, impacted by a significant decrease in other non-operating income, primarily due to the absence of prior year gains from divestitures and joint venture buyouts. However, core diluted EPS saw a modest 1% increase, reflecting management's focus on sustainable earnings. The company continues its productivity and cost savings program, investing in innovation and managing its brand portfolio, with a notable subsequent event announcing the sale of its Pet Care brands.

Financial Highlights

53 data points
Beta

Revenue

$19.64B

48.9% Gross Margin

Net Income

$2.61B

13.3% Net Margin

EPS (Diluted)

$0.90

Total Assets

$143.20B

Cash & Equivalents

$8.18B

Free Cash Flow

$3.17B

Financial Statements
Beta
Revenue$19.64B
Cost of Revenue$10.04B
Gross Profit$9.60B
SG&A Expenses$6.29B
Operating Income$3.31B
Interest Expense$180.00M
Net Income$2.61B
EPS (Basic)$0.94
EPS (Diluted)$0.90
Shares Outstanding (Basic)2.71B
Shares Outstanding (Diluted)2.89B

Key Highlights

  • 1Net sales remained stable at $20.6 billion for the quarter, with organic sales growing 3% driven by a 3% increase in unit volume.
  • 2Gross margin declined by 140 basis points to 48.4% due to unfavorable foreign exchange and product mix, partially offset by 200 basis points of manufacturing cost savings.
  • 3SG&A expenses decreased by 5% to $6.5 billion, with SG&A as a percentage of net sales improving by 170 basis points, largely due to reduced marketing spending.
  • 4Net earnings attributable to Procter & Gamble increased by 2% to $2.6 billion for the quarter.
  • 5Diluted net earnings per share increased by 2% to $0.90, while core diluted EPS (excluding certain charges) rose 5% to $1.04.
  • 6For the nine-month period, net sales increased 1% to $64.0 billion, while net earnings attributable to P&G decreased 4% to $9.1 billion.
  • 7The company announced the pending sale of its Pet Care brands (IAMS®, EUKANUBA®, NATURA®) for $2.9 billion in cash, expected to close in H2 2014.

Frequently Asked Questions

Unfavorable foreign exchange had a notable impact, reducing net sales by 3% in the quarter and by approximately $350 million on net earnings. For the nine-month period, foreign exchange reduced net sales by 3% and net earnings by about $920 million.

Gross margin contracted primarily due to a 100 basis point impact from unfavorable foreign exchange and about 150 basis points from unfavorable geographic and product mix. This was partially offset by manufacturing cost savings of about 200 basis points.

Core EPS is a non-GAAP measure that excludes certain items not considered part of sustainable results, such as incremental restructuring charges and impacts from currency devaluations. For the quarter, core diluted EPS increased 5% to $1.04, and for the nine-month period, it increased 1% to $3.30, indicating underlying operational strength.

The announced sale of the IAMS®, EUKANUBA®, and NATURA® brands for $2.9 billion is a significant portfolio management move, allowing P&G to focus on its core consumer brands. The results of the Pet Care business will be presented as discontinued operations starting from the next quarter.