01—Abstract
Summary
Summary of the 10-Q filed January 26, 2016. Cited figures are marked; the original filing is the authoritative source.
Procter & Gamble reported a mixed financial performance for the second quarter and the first half of fiscal year 2016, ending December 31, 2015.
While net sales saw a decline driven by unfavorable foreign exchange and a decrease in unit volume across most segments, the company demonstrated resilience through improved pricing and cost management, leading to an increase in operating income and net earnings from continuing operations. Significant gains were also recorded in net earnings due to the absence of large impairment charges from the prior year's Batteries divestiture. The company is actively managing its portfolio, with significant progress on the divestiture of Beauty Brands and Batteries businesses, which are now presented as discontinued operations.
These strategic moves are aimed at focusing on core strengths. Despite ongoing challenges from currency fluctuations and market competition, P&G's commitment to productivity and cost savings is evident in its gross margin expansion and improved operating margins. Investors should monitor the progress and impact of ongoing divestitures and the company's ability to navigate global economic uncertainties.
02—Key points
Key Highlights
- Net sales decreased by 9% for the three months ended December 31, 2015, and 10% for the six months ended December 31, 2015, largely due to unfavorable foreign exchange and a 3-4% decrease in unit volume.
- Despite declining sales, operating income increased by 8% for the quarter and 6% for the six-month period, driven by improved gross margins (up 170 bps and 210 bps respectively) and a decrease in SG&A as a percentage of sales.
- Net earnings attributable to Procter & Gamble significantly increased by 35% for the quarter and 33% for the six-month period, largely benefiting from a reduction in impairment charges related to the Batteries business divestiture in the prior year.
- Net earnings from continuing operations increased by 9% for the quarter and 5% for the six-month period, demonstrating operational strength.
- Diluted earnings per share from continuing operations saw a healthy increase of 10% for the quarter and 6% for the six-month period.
- The company is actively pursuing portfolio optimization, with the Beauty Brands and Batteries businesses presented as discontinued operations, ahead of their expected divestitures.
- The company continues to return capital to shareholders through dividends and share repurchases, with approximately $2.5 billion spent on treasury stock purchases in the first six months of the fiscal year.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2016, Procter & Gamble Co kept $0.19.
- Revenue$16.91B100.0%
- Cost of revenue−$8.46B50.0%
- Gross profit$8.46B50.0%
- Operating costs−$4.60B27.2%
- Operating income$3.85B22.8%
- Interest, other & tax−$647.0M3.8%
- Net income$3.21B19.0%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2016filed January 26, 2016Financial Statements
Q2 FY2016 against Q2 FY2015
| Line item | Q2 FY2016Q2 FY2015 | Change |
|---|---|---|
| Revenue | $16.91B$18.50B | −8.5% |
| Cost of Revenue | $8.46B$9.56B | −11.5% |
| Gross Profit | $8.46B$8.94B | −5.4% |
| SG&A Expenses | $4.60B$5.36B | −14.1% |
| Operating Income | $3.85B$3.58B | +7.7% |
| Interest Expense | $143.00M$160.00M | −10.6% |
| Net Income | $3.21B$2.37B | +35.2% |
| EPS (Basic) | $1.16$0.85 | +36.5% |
| EPS (Diluted) | $1.12$0.82 | +36.6% |
| Shares Outstanding (Basic) | 2.72B2.71B | +0.5% |
| Shares Outstanding (Diluted) | 2.86B2.89B | −0.7% |
05—Questions
Frequently Asked Questions
What is the main reason for the decline in Net Sales?
The primary drivers for the decline in net sales were unfavorable foreign exchange impacts (approximately 8% reduction) and a decrease in unit volume (around 3-4% decrease) across most business segments. Price increases partially offset these declines.
How is the company managing costs despite declining sales?
Procter & Gamble is effectively managing costs through significant manufacturing cost savings, lower commodity costs, and productivity efforts in selling, general, and administrative expenses. These initiatives are improving gross margins and operating margins.
What is the impact of the ongoing divestitures of the Beauty Brands and Batteries businesses on the financial results?
These businesses are presented as discontinued operations. The current period benefited significantly from the absence of large impairment charges recorded in the prior year related to the Batteries business divestiture. The Beauty Brands divestiture is progressing as expected, with an expected close in the second half of calendar year 2016.
How is the company returning value to shareholders?
The company continues to prioritize returning value to shareholders through dividend payments and share repurchases. In the first six months of the fiscal year, P&G spent approximately $3.7 billion on dividends and $2.5 billion on share repurchases.
06—Continue