10-QPeriod: Q2 FY2015

PROCTER & GAMBLE Co Quarterly Report for Q2 Ended Dec 31, 2014

Filed January 27, 2015For Securities:PG

Summary

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 billion, 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 billion 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.

Financial Highlights

54 data points
Beta

Revenue

$18.50B

48.3% Gross Margin

Net Income

$2.37B

12.8% Net Margin

EPS (Diluted)

$0.82

Total Assets

$136.26B

Cash & Equivalents

$8.20B

Free Cash Flow

$2.60B

Financial Statements
Beta
Revenue$18.50B
Cost of Revenue$9.56B
Gross Profit$8.94B
SG&A Expenses$5.36B
Operating Income$3.58B
Interest Expense$160.00M
Net Income$2.37B
EPS (Basic)$0.85
EPS (Diluted)$0.82
Shares Outstanding (Basic)2.71B
Shares Outstanding (Diluted)2.89B

Key Highlights

  • 1Net sales decreased by 4% to $20.2 billion for the quarter, with organic sales growing by 2%.
  • 2The company recorded a net loss of $577 million from discontinued operations, largely due to a $740 million impairment charge related to the Batteries business.
  • 3Net earnings attributable to Procter & Gamble decreased significantly by 31% to $2.4 billion due to the discontinued operations loss.
  • 4Diluted EPS from continuing operations declined 9% to $1.02, while overall diluted EPS fell 31% to $0.82.
  • 5Gross margin decreased by 40 basis points, impacted by higher commodity costs and unfavorable foreign exchange, partially offset by manufacturing cost savings and higher pricing.
  • 6The company continues its portfolio optimization, with the divestiture of the Batteries business (Duracell) to Berkshire Hathaway expected in the second half of calendar 2015.
  • 7Significant 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.

Frequently Asked Questions

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.

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.

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.

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.