01—Abstract
Summary
Summary of the 10-Q filed October 25, 2016. Cited figures are marked; the original filing is the authoritative source.
Procter & Gamble's fiscal first-quarter 2017 report (ending September 30, 2016) shows stable net sales of $16.5 billiona, flat year-over-year, but a 3% increase in organic sales driven by a 3% organic volume increase.
Diluted Earnings Per Share (EPS) from continuing operations grew 4% to $1.00b, and Core EPS (excluding restructuring charges) rose 5% to $1.03. The company continues its portfolio transformation with the divestiture of its Beauty Brands business to Coty, Inc., completed shortly after the quarter's end. This strategic move, alongside ongoing productivity initiatives, aims to streamline operations and focus on core strengths.
The financial results demonstrate resilience in a challenging global economic environment, with positive organic sales growth across most segments. While foreign exchange headwinds impacted reported sales, the underlying business performance, supported by cost savings and productivity initiatives, remained solid.
Investors can note the slight improvement in gross margin and continued focus on managing operating expenses. The company also highlights its commitment to returning value to shareholders through dividends and share repurchases.
02—Key points
Key Highlights
- Net sales remained stable at $16.5 billion, while organic sales grew by 3% due to a 3% increase in organic volume.
- Diluted EPS from continuing operations increased by 4% to $1.00, and Core EPS, excluding restructuring charges, rose by 5% to $1.03.
- The company generated $3.0 billion in operating cash flow and $2.3 billion in free cash flow, with a free cash flow productivity of 85%.
- The divestiture of Beauty Brands to Coty, Inc. was completed shortly after the quarter's end, a key part of the company's portfolio optimization strategy.
- Gross margin improved slightly to 51.0% due to manufacturing cost savings and volume leverage, partially offset by foreign exchange impacts.
- SG&A expenses increased slightly as a percentage of sales, driven by higher marketing activities, but overhead costs saw reductions due to productivity efforts.
- The company continues to manage foreign exchange headwinds, which reduced net sales by 3% for the quarter.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2017, Procter & Gamble Co kept $0.16.
- Revenue$16.52B100.0%
- Cost of revenue−$8.10B49.0%
- Gross profit$8.42B51.0%
- Operating costs−$4.64B28.1%
- Operating income$3.77B22.8%
- Interest, other & tax−$1.06B6.4%
- Net income$2.71B16.4%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2017filed October 25, 2016Financial Statements
Q1 FY2017 against Q1 FY2016
| Line item | Q1 FY2017Q1 FY2016 | Change |
|---|---|---|
| Revenue | $16.52B$16.53B | −0.1% |
| Cost of Revenue | $8.10B$8.15B | −0.6% |
| Gross Profit | $8.42B$8.38B | +0.5% |
| SG&A Expenses | $4.64B$4.61B | +0.8% |
| Operating Income | $3.77B$3.77B | +0.1% |
| Interest Expense | $131.00M$140.00M | −6.4% |
| Net Income | $2.71B$2.60B | +4.3% |
| EPS (Basic) | $0.99$0.93 | +6.5% |
| EPS (Diluted) | $0.96$0.91 | +5.5% |
| Shares Outstanding (Basic) | 2.67B2.72B | −1.7% |
| Shares Outstanding (Diluted) | 2.82B2.87B | −1.6% |
05—Questions
Frequently Asked Questions
What was the primary driver of the increase in Net Earnings from Continuing Operations?
The increase in Net Earnings from Continuing Operations by 4% to $2.9 billion was primarily driven by an increase in other non-operating income due to minor brand divestitures and a lower effective tax rate, partly aided by a new accounting standard for share-based payments.
How did the divestiture of the Beauty Brands impact the financial statements?
The Beauty Brands are presented as discontinued operations for all periods. Assets and liabilities related to the Beauty Brands are classified as held for sale on the Consolidated Balance Sheets. The divestiture to Coty, Inc. was completed on October 1, 2016, shortly after the quarter end, and its results are excluded from segment reporting for continuing operations.
What is 'Core EPS' and how did it perform?
Core EPS is a non-GAAP measure that represents diluted EPS from continuing operations, excluding incremental restructuring charges. It increased by 5% to $1.03, indicating solid underlying operational performance after accounting for one-time or non-recurring items.
What are the company's primary risks related to foreign exchange?
Procter & Gamble faces both translation exposure (converting foreign subsidiary earnings) and transaction exposure (foreign currency denominated costs or working capital balances). The strengthening U.S. dollar negatively impacted sales and earnings, particularly in countries like Argentina, Egypt, Mexico, and the United Kingdom. The company attempts to manage these impacts through pricing actions and cost savings but notes that significant currency fluctuations can still affect results.
06—Continue