10-QPeriod: Q1 FY2016

PROCTER & GAMBLE Co Quarterly Report for Q1 Ended Sep 30, 2015

Filed October 23, 2015For Securities:PG

Summary

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 billion, 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 billion, 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.

Financial Highlights

53 data points
Beta

Revenue

$16.53B

50.7% Gross Margin

Net Income

$2.60B

15.7% Net Margin

EPS (Diluted)

$0.91

Total Assets

$129.26B

Cash & Equivalents

$7.71B

Free Cash Flow

$3.01B

Financial Statements
Beta
Revenue$16.53B
Cost of Revenue$8.15B
Gross Profit$8.38B
SG&A Expenses$4.61B
Operating Income$3.77B
Interest Expense$140.00M
Net Income$2.60B
EPS (Basic)$0.93
EPS (Diluted)$0.91
Shares Outstanding (Basic)2.72B
Shares Outstanding (Diluted)2.87B

Key Highlights

  • 1Net sales declined 12% to $16.5 billion, with a 5% decrease in unit volume and a 9% headwind from unfavorable foreign exchange.
  • 2Net earnings from continuing operations increased 2% to $2.8 billion, driven by margin expansion from cost savings and pricing.
  • 3Diluted EPS from continuing operations grew 3% to $0.96.
  • 4Significant 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.
  • 5The 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).
  • 6Free cash flow generation remained strong at $3.0 billion for the quarter, with adjusted free cash flow productivity at 101%.

Frequently Asked Questions

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.

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.

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.

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.