10-QPeriod: Q1 FY2017

PROCTER & GAMBLE Co Quarterly Report for Q1 Ended Sep 30, 2016

Filed October 25, 2016For Securities:PG

Summary

Procter & Gamble's fiscal first-quarter 2017 report (ending September 30, 2016) shows stable net sales of $16.5 billion, 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 $1.00, 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.

Financial Highlights

53 data points
Beta

Revenue

$16.52B

51.0% Gross Margin

Net Income

$2.71B

16.4% Net Margin

EPS (Diluted)

$0.96

Total Assets

$129.04B

Cash & Equivalents

$7.46B

Free Cash Flow

$2.34B

Financial Statements
Beta
Revenue$16.52B
Cost of Revenue$8.10B
Gross Profit$8.42B
SG&A Expenses$4.64B
Operating Income$3.77B
Interest Expense$131.00M
Net Income$2.71B
EPS (Basic)$0.99
EPS (Diluted)$0.96
Shares Outstanding (Basic)2.67B
Shares Outstanding (Diluted)2.82B

Key Highlights

  • 1Net sales remained stable at $16.5 billion, while organic sales grew by 3% due to a 3% increase in organic volume.
  • 2Diluted EPS from continuing operations increased by 4% to $1.00, and Core EPS, excluding restructuring charges, rose by 5% to $1.03.
  • 3The 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%.
  • 4The 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.
  • 5Gross margin improved slightly to 51.0% due to manufacturing cost savings and volume leverage, partially offset by foreign exchange impacts.
  • 6SG&A expenses increased slightly as a percentage of sales, driven by higher marketing activities, but overhead costs saw reductions due to productivity efforts.
  • 7The company continues to manage foreign exchange headwinds, which reduced net sales by 3% for the quarter.

Frequently Asked Questions

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.

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.

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.

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.