10-QPeriod: Q3 FY2018

PROCTER & GAMBLE Co Quarterly Report for Q3 Ended Mar 31, 2018

Filed April 19, 2018For Securities:PG

Summary

Procter & Gamble (PG) reported mixed financial results for the third quarter of fiscal year 2018, with net sales increasing by 4% to $16.3 billion. This top-line growth was driven by a 1% increase in unit volume and a 4% positive impact from foreign exchange, although a 2% negative pricing impact and unfavorable mix tempered the gains. Net earnings attributable to P&G remained flat at $2.5 billion, reflecting pressures on gross margins due to higher commodity costs and unfavorable mix, partially offset by manufacturing cost savings. Diluted EPS from continuing operations saw a modest 2% increase to $0.95 due to a reduction in shares outstanding. For the nine-month period, net sales grew 3% to $50.3 billion, with organic sales up 1%. Net earnings from continuing operations were flat at $8.0 billion, impacted by the transitional effects of the U.S. Tax Act which offset benefits from sales growth and prior year charges. Diluted EPS from continuing operations increased by 2% to $2.94. The company highlighted strong operating cash flow of $10.7 billion and free cash flow of $7.9 billion, demonstrating robust cash generation capabilities. Investors should note the ongoing restructuring costs and the potential impact of commodity prices and foreign exchange fluctuations.

Financial Highlights

53 data points
Beta

Revenue

$16.28B

48.5% Gross Margin

Net Income

$2.51B

15.4% Net Margin

EPS (Diluted)

$0.95

Total Assets

$124.37B

Cash & Equivalents

$5.33B

Free Cash Flow

$2.44B

Financial Statements
Beta
Revenue$16.28B
Cost of Revenue$8.38B
Gross Profit$7.90B
SG&A Expenses$4.69B
Operating Income$3.21B
Interest Expense$133.00M
Net Income$2.51B
EPS (Basic)$0.97
EPS (Diluted)$0.95
Shares Outstanding (Basic)2.52B
Shares Outstanding (Diluted)2.65B

Key Highlights

  • 1Net sales for the third quarter increased by 4% to $16.3 billion, driven by volume growth and favorable foreign exchange, though partially offset by pricing pressures.
  • 2Diluted Earnings Per Share (EPS) from continuing operations for the quarter rose by 2% to $0.95, aided by a reduction in outstanding shares.
  • 3For the first nine months, net sales grew 3% to $50.3 billion, with organic sales increasing by 1%.
  • 4Net earnings attributable to P&G for the nine-month period decreased by 40% to $7.9 billion, largely due to a significant gain from discontinued operations (Beauty Brands divestiture) in the prior year period.
  • 5The company generated strong operating cash flow of $10.7 billion and free cash flow of $7.9 billion for the nine months ended March 31, 2018.
  • 6The U.S. Tax Act introduced a net charge of $650 million for the nine-month period due to transitional impacts, affecting net earnings and the effective tax rate.
  • 7Restructuring charges of $516 million were incurred for the nine-month period as part of a multi-year productivity and cost savings plan.

Frequently Asked Questions

The U.S. Tax Act enacted in December 2017 had a significant impact. For the nine months ended March 31, 2018, it resulted in a provisional net charge of $650 million, comprising an estimated $3.9 billion repatriation tax and a $3.2 billion net deferred tax benefit. This impacted the effective tax rate, leading to a net charge and influencing net earnings. The company is still assessing the final impacts.

The Grooming segment experienced a 1% decrease in net sales for the nine-month period, primarily due to pricing reductions in Shave Care and unfavorable product mix. The Baby, Feminine & Family Care segment saw a 1% decrease in net sales for the nine-month period, with volume declines in both developed and developing regions impacted by competitive activity and trade inventory reductions. These segments are facing headwinds from pricing pressures, mix shifts, and competitive dynamics.

Procter & Gamble is actively pursuing productivity and cost savings initiatives. For the nine months ended March 31, 2018, manufacturing cost savings projects contributed significantly to gross margin. Additionally, the company is implementing a multi-year productivity and cost savings plan expected to incur approximately $1.2 billion in restructuring costs through fiscal 2019, focusing on supply chain, marketing, and overhead expenses to improve efficiency.

The company generated strong free cash flow of $7.9 billion for the nine-month period, indicating the ability to support shareholder returns. During the third quarter, the company repurchased approximately $16.5 million worth of shares. The company expects to reduce outstanding shares through direct repurchases by approximately $6 to $8 billion in fiscal year 2018, financed by operating cash flows and debt issuance.