01—Abstract
Summary
Summary of the 10-Q filed October 23, 2015. Cited figures are marked; the original filing is the authoritative source.
Procter & Gamble's (PG) Q1 FY16 results, filed on October 23, 2015, reflect a challenging revenue environment with a 12% year-over-year net sales decrease to $16.5 billiona, primarily driven by a 5% decline in unit volume and a significant 9% negative impact from foreign exchange.
Despite the top-line pressure, the company managed to increase net earnings from continuing operations by 2% to $2.8 billionb, largely due to improved operating margins driven by cost savings and pricing actions. A substantial reduction in losses from discontinued operations, notably a $582 million decrease in impairment charges related to the Batteries business, significantly boosted overall net earnings attributable to P&G by 31% to $2.6 billion, with diluted EPS rising to $0.91.
02—Key points
Key Highlights
- Net sales declined 12% to $16.5 billion, with a 5% decrease in unit volume and a 9% headwind from unfavorable foreign exchange.
- Net earnings from continuing operations increased 2% to $2.8 billion, driven by margin expansion from cost savings and pricing.
- Diluted EPS from continuing operations grew 3% to $0.96.
- Significant reduction in losses from discontinued operations, primarily due to lower impairment charges for the Batteries business, led to a 31% increase in net earnings attributable to P&G to $2.6 billion.
- The company is actively divesting non-core assets, with agreements in place for the Beauty Brands (merging with Coty) and the Batteries business (to Berkshire Hathaway).
- Free cash flow generation remained strong at $3.0 billion for the quarter, with adjusted free cash flow productivity at 101%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2016, Procter & Gamble Co kept $0.16.
- Revenue$16.53B100.0%
- Cost of revenue−$8.15B49.3%
- Gross profit$8.38B50.7%
- Operating costs−$4.61B27.9%
- Operating income$3.77B22.8%
- Interest, other & tax−$1.17B7.1%
- Net income$2.60B15.7%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2016filed October 23, 2015Financial Statements
Q1 FY2016 against Q1 FY2015
| Line item | Q1 FY2016Q1 FY2015 | Change |
|---|---|---|
| Revenue | $16.53B$18.77B | −12.0% |
| Cost of Revenue | $8.15B$9.73B | −16.3% |
| Gross Profit | $8.38B$9.04B | −7.3% |
| SG&A Expenses | $4.61B$5.40B | −14.7% |
| Operating Income | $3.77B$3.63B | +3.7% |
| Interest Expense | $140.00M$170.00M | −17.6% |
| Net Income | $2.60B$1.99B | +30.7% |
| EPS (Basic) | $0.93$0.71 | +31.0% |
| EPS (Diluted) | $0.91$0.69 | +31.9% |
| Shares Outstanding (Basic) | 2.72B2.71B | +0.4% |
| Shares Outstanding (Diluted) | 2.87B2.89B | −0.7% |
05—Questions
Frequently Asked Questions
What is the primary driver behind the significant decrease in net sales?
The primary drivers for the 12% decrease in net sales were a 5% decline in unit volume across most segments and a substantial 9% negative impact from unfavorable foreign exchange rates, particularly against key currencies like the Japanese Yen, Russian Ruble, Turkish Lira, and British Pound.
How did the company manage to increase net earnings from continuing operations despite falling sales?
Procter & Gamble improved its operating margin, which more than offset the decline in net sales. This margin expansion was achieved through a combination of manufacturing cost savings, lower commodity costs, and strategic pricing increases, along with effective control of selling, general, and administrative (SG&A) expenses.
What is the impact of the divested businesses on the financial results?
The divestiture of certain businesses, particularly the Batteries business, has significantly impacted the 'discontinued operations' line item. A substantial reduction in impairment charges related to the Batteries business compared to the prior year period largely contributed to the significant year-over-year increase in net earnings attributable to Procter & Gamble.
What is the company's outlook regarding its portfolio optimization strategy?
The company is actively executing its portfolio optimization strategy, evidenced by the agreements to divest its Beauty Brands to Coty and its Batteries business to Berkshire Hathaway. These strategic moves are aimed at focusing the company on its core strengths and enhancing long-term shareholder value.
06—Continue