01—Abstract
Summary
Summary of the 10-Q filed April 26, 2016. Cited figures are marked; the original filing is the authoritative source.
Procter & Gamble's (PG) third-quarter fiscal year 2016 results show a mixed performance driven by ongoing portfolio transformation and foreign exchange headwinds.
While net sales decreased by 7% year-over-year to $15.8 billiona, this was largely attributed to a 5% unfavorable foreign exchange impact and a 3% reduction from minor brand divestitures and the Venezuela deconsolidation, with organic sales showing a modest 1% increase. The company reported a net loss from discontinued operations of $213 million in the prior year, which was significantly improved by a $446 million net gain in the current period, largely due to a $422 million after-tax gain on the sale of the Batteries business. This contributed to a substantial 28% increase in net earnings attributable to Procter & Gamble, reaching $2.8 billion.
However, net earnings from continuing operations saw a slight decrease of 3% to $2.3 billionb, impacted by lower net sales and an increased effective tax rate. Management highlighted progress in productivity savings and cost management, with gross margin improving by 250 basis points due to manufacturing cost savings and lower commodity costs. Despite topline challenges, the company continues to focus on its portfolio optimization strategy and brand innovation, as evidenced by ongoing divestitures and focus on core strengths.
02—Key points
Key Highlights
- Net sales for the quarter decreased by 7% to $15.8 billion, primarily due to a 5% unfavorable foreign exchange impact and 3% from divestitures/deconsolidation. Organic sales saw a modest 1% increase.
- Net earnings attributable to Procter & Gamble increased significantly by 28% to $2.8 billion, largely driven by an improvement in results from discontinued operations, including a $422 million gain from the Batteries business sale.
- Net earnings from continuing operations decreased slightly by 3% to $2.3 billion, impacted by lower net sales and a higher effective tax rate.
- Gross margin improved by 250 basis points to 49.8%, benefiting from manufacturing cost savings and lower commodity costs.
- The company reported a substantial gain from discontinued operations, improving from a net loss of $213 million in the prior year to a net gain of $446 million in the current period.
- Diluted earnings per share (EPS) increased by 29% to $0.97, reflecting the strong performance in discontinued operations.
- The Beauty Brands divestiture to Coty is progressing, with an expected closing in the second half of calendar year 2016.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2016, Procter & Gamble Co kept $0.17.
- Revenue$15.76B100.0%
- Cost of revenue−$7.92B50.2%
- Gross profit$7.84B49.8%
- Operating costs−$4.52B28.7%
- Operating income$3.32B21.1%
- Interest, other & tax−$568.0M3.6%
- Net income$2.75B17.5%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2016filed April 26, 2016Financial Statements
Q3 FY2016 against Q3 FY2015
| Line item | Q3 FY2016Q3 FY2015 | Change |
|---|---|---|
| Revenue | $15.76B$16.93B | −6.9% |
| Cost of Revenue | $7.92B$8.93B | −11.3% |
| Gross Profit | $7.84B$8.00B | −2.0% |
| SG&A Expenses | $4.52B$4.98B | −9.2% |
| Operating Income | $3.32B$3.02B | +9.7% |
| Interest Expense | $146.00M$148.00M | −1.4% |
| Net Income | $2.75B$2.15B | +27.7% |
| EPS (Basic) | $1.00$0.77 | +29.9% |
| EPS (Diluted) | $0.97$0.75 | +29.3% |
| Shares Outstanding (Basic) | 2.69B2.71B | −0.8% |
| Shares Outstanding (Diluted) | 2.83B2.88B | −1.6% |
05—Questions
Frequently Asked Questions
What drove the significant increase in net earnings attributable to Procter & Gamble?
The substantial increase in net earnings attributable to Procter & Gamble was primarily driven by a significant improvement in the results from discontinued operations. This included a $422 million after-tax gain from the sale of the Batteries business and a general improvement compared to the net loss reported in the prior year for discontinued operations.
How did foreign exchange rates impact the company's performance?
Foreign exchange rates had a notable negative impact, reducing net sales by 5% for the quarter. The company cited unfavorable foreign exchange as a significant factor affecting performance, particularly in currencies of countries like Argentina, Canada, Mexico, and Turkey.
What is the status of the Beauty Brands divestiture?
Procter & Gamble announced an agreement to divest its Beauty Brands to Coty, Inc. The transaction is expected to close in the second half of calendar year 2016, pending regulatory approvals. The value of the transaction is estimated at approximately $13.5 billion based on current market conditions.
How did the company's productivity and cost-saving initiatives perform?
The company highlighted progress in its productivity and cost-saving initiatives, which contributed to a significant improvement in gross margin by 250 basis points. These savings, along with lower commodity costs, helped offset some of the negative impacts from lower net sales and foreign exchange.
06—Continue