10-QPeriod: Q1 FY2019

PROCTER & GAMBLE Co Quarterly Report for Q1 Ended Sep 30, 2018

Filed October 19, 2018For Securities:PG

Summary

Procter & Gamble's first quarter fiscal year 2019 report shows stable net sales, with a 4% increase in organic sales driven by a 3% rise in unit volume and favorable pricing/mix across several segments, particularly Beauty and Fabric & Home Care. Despite a slight decrease in gross margin due to higher commodity costs, the company reported a significant 12% increase in net earnings, largely attributable to a lower effective tax rate resulting from the U.S. Tax Act and a one-time gain from the dissolution of the PGT Healthcare partnership. Diluted EPS saw a 15% increase, also benefiting from a reduced share count due to ongoing share repurchases. The company continued its focus on productivity and cost savings, incurring $137 million in restructuring charges during the quarter. While goodwill remains substantial, particularly in the Grooming segment, the company noted increased susceptibility to impairment risk for the Shave Care reporting unit and the Gillette brand due to competitive pressures and currency devaluations. P&G's strong operating cash flow and disciplined capital allocation, including significant dividend payments and share repurchases, underscore its commitment to returning value to shareholders.

Financial Highlights

53 data points
Beta

Revenue

$16.69B

49.2% Gross Margin

Net Income

$3.20B

19.2% Net Margin

EPS (Diluted)

$1.22

Total Assets

$118.44B

Cash & Equivalents

$2.54B

Free Cash Flow

$2.49B

Financial Statements
Beta
Revenue$16.69B
Cost of Revenue$8.48B
Gross Profit$8.21B
SG&A Expenses$4.65B
Operating Income$3.55B
Interest Expense$129.00M
Net Income$3.20B
EPS (Basic)$1.26
EPS (Diluted)$1.22
Shares Outstanding (Basic)2.50B
Shares Outstanding (Diluted)2.61B

Key Highlights

  • 1Net sales remained flat at $16.7 billion, but organic sales grew by 4% year-over-year, indicating underlying business strength.
  • 2Net earnings increased by 12% to $3.2 billion, primarily driven by a lower effective tax rate and a one-time gain from the dissolution of the PGT Healthcare partnership.
  • 3Diluted EPS rose by 15% to $1.22, benefiting from increased net earnings and a reduction in outstanding shares through buybacks.
  • 4Gross margin declined by 110 basis points primarily due to higher commodity costs, partially offset by cost savings initiatives.
  • 5The company incurred $137 million in restructuring charges, part of ongoing productivity and cost-saving programs.
  • 6Goodwill in the Shave Care and Gillette brand is noted as being more susceptible to impairment risk due to market challenges.
  • 7Operating cash flow was strong at $3.6 billion, with a reported adjusted free cash flow of $2.7 billion and 95% productivity.

Frequently Asked Questions

The primary drivers for the 12% increase in net earnings were a lower effective tax rate, largely due to the ongoing impacts of the U.S. Tax Act, and a significant $355 million before-tax gain from the dissolution of the PGT Healthcare partnership.

The Beauty segment showed strong growth with a 5% net sales increase and a 20% rise in net earnings. Fabric & Home Care also saw net sales growth of 2% with a 14% increase in net earnings. However, Baby, Feminine & Family Care and Health Care segments experienced net sales declines of 3% each, although net earnings still increased for both due to improved margins and tax benefits.

The company identified the Shave Care reporting unit and the Gillette indefinite-lived intangible asset as having reduced fair value cushions, making them more susceptible to impairment risk. This is attributed to an increased competitive market, changing grooming habits, and significant currency devaluations, which have impacted cash flow projections. The company provided a sensitivity analysis indicating potential fair value impacts from changes in growth rates and discount rates.

Procter & Gamble is actively pursuing productivity and cost savings through various programs. This quarter, $137 million in restructuring charges were incurred, targeting supply chain, marketing, and overhead expenses. The company reported gross manufacturing cost savings and productivity gains within SG&A that helped offset rising commodity costs and unfavorable foreign exchange impacts.