01—Abstract
Summary
Summary of the 10-Q filed January 27, 2015. Cited figures are marked; the original filing is the authoritative source.
Procter & Gamble's (PG) third quarter of fiscal year 2015 (ending December 31, 2014) shows a decline in net sales and earnings compared to the prior year.
Net sales decreased by 4% to $20.2 billiona, impacted by unfavorable foreign exchange rates which reduced sales by 5%. While unit volume remained flat overall, organic sales grew by 2%, indicating underlying business strength driven by pricing and product/geographic mix. The most significant factor affecting the bottom line was a substantial net loss from discontinued operations, primarily due to a $740 million non-cash impairment charge related to the Batteries business divestiture.
This led to a reported net loss attributable to Procter & Gamble of $2.4 billionb for the quarter, a sharp decline from the previous year. Excluding discontinued operations and certain other items, core earnings per share also saw a decrease, reflecting the ongoing challenges in the global economic environment and strategic portfolio adjustments.
02—Key points
Key Highlights
- Net sales decreased by 4% to $20.2 billion for the quarter, with organic sales growing by 2%.
- The company recorded a net loss of $577 million from discontinued operations, largely due to a $740 million impairment charge related to the Batteries business.
- Net earnings attributable to Procter & Gamble decreased significantly by 31% to $2.4 billion due to the discontinued operations loss.
- Diluted EPS from continuing operations declined 9% to $1.02, while overall diluted EPS fell 31% to $0.82.
- Gross margin decreased by 40 basis points, impacted by higher commodity costs and unfavorable foreign exchange, partially offset by manufacturing cost savings and higher pricing.
- The company continues its portfolio optimization, with the divestiture of the Batteries business (Duracell) to Berkshire Hathaway expected in the second half of calendar 2015.
- Significant foreign exchange headwinds impacted net sales and earnings, with unfavorable currency movements reducing net sales by 5% and net earnings by approximately $450 million for the quarter.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2015, Procter & Gamble Co kept $0.13.
- Revenue$18.50B100.0%
- Cost of revenue−$9.56B51.7%
- Gross profit$8.94B48.3%
- Operating costs−$5.36B29.0%
- Operating income$3.58B19.4%
- Interest, other & tax−$1.21B6.5%
- Net income$2.37B12.8%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2015filed January 27, 2015Financial Statements
Q2 FY2015 against Q2 FY2014
| Line item | Q2 FY2015Q2 FY2014 | Change |
|---|---|---|
| Revenue | $18.50B$21.10B | −12.3% |
| Cost of Revenue | $9.56B$10.47B | −8.7% |
| Gross Profit | $8.94B$10.63B | −15.9% |
| SG&A Expenses | $5.36B$6.32B | −15.3% |
| Operating Income | $3.58B$4.30B | −16.8% |
| Interest Expense | $160.00M$185.00M | −13.5% |
| Net Income | $2.37B$3.43B | −30.8% |
| EPS (Basic) | $0.85$1.24 | −31.5% |
| EPS (Diluted) | $0.82$1.18 | −30.5% |
| Shares Outstanding (Basic) | 2.71B— | — |
| Shares Outstanding (Diluted) | 2.89B2.91B | −0.8% |
05—Questions
Frequently Asked Questions
What is the primary reason for the significant drop in net earnings?
The significant drop in net earnings is primarily due to a substantial net loss from discontinued operations, which includes a $740 million non-cash impairment charge related to the Batteries business divestiture. This impairment charge, combined with an overall decrease in earnings from continuing operations, led to the reported decline.
How did foreign exchange rates affect the company's performance?
Unfavorable foreign exchange rates had a notable negative impact. They reduced net sales by 5% and are estimated to have reduced net earnings by approximately $450 million for the quarter. This highlights the challenges of operating in a global market with fluctuating currency values.
What is the outlook for the Batteries business (Duracell)?
Procter & Gamble has agreed to divest its Batteries business (Duracell) to Berkshire Hathaway. The transaction is expected to close in the second half of calendar 2015. This divestiture is a part of the company's broader strategy to streamline its portfolio.
Are there any signs of underlying business strength despite the reported declines?
Yes, despite the overall sales decline, organic sales grew by 2% for the quarter. This indicates that the core business, excluding currency impacts, acquisitions, and divestitures, showed positive growth driven by pricing actions and favorable product/geographic mix. Unit volume remained flat, suggesting stable demand for core products.
06—Continue