01—Abstract
Summary
Summary of the 8-K filed March 7, 2000. Cited figures are marked; the original filing is the authoritative source.
On March 7, 2000, Procter & Gamble (NYSE: PG) issued a press release under Item 5 (Other Events) revising its fiscal 2000 earnings outlook while reaffirming top-line momentum.
Management now expects second-half top-line sales growth of 7-8%a, more than double the prior-year rate for the same period. However, core diluted EPS for the fiscal year is now expected to grow about 7%, down from the 13% originally anticipated. Core third-quarter diluted EPS is projected to decline 10-11% year over year, versus prior guidance of a 7-9% increase, while fourth-quarter EPS growth is expected at 16-18%.
The earnings revision is attributed to several unanticipated events not offset by cost savings: higher pulp and petroleum-based raw material costs, elevated manufacturing, inventory, and logistics costs in Europe tied to numerous new product launches during reorganization, a shift of a milestone payment and minor asset sales from January-March into April-June (largely due to a delayed U.S. approval of the osteoporosis drug Actonel), and aggressive competitive pricing in Argentina, Brazil, and Chile. CEO Durk Jager acknowledged disappointment with profit progress and said management is refocusing on cost reduction and balancing long-term growth against near-term earnings.
Management reaffirmed fiscal 2001 guidance of 6-8%b top-line growth and EPS growth at the upper end of a 13-15% range on the revised base, and stated it will continue using free cash flow for share repurchases. For investors, the key takeaways are that revenue momentum is strong but margin and cost execution is the central concern, and that the credibility of the forward EPS framework depends on delivering the cost discipline management has promised.
02—Key points
Key Highlights
- Second-half fiscal 2000 top-line sales growth guided to 7-8%, more than double the prior-year rate for the same period
- Fiscal 2000 core diluted EPS growth now expected at about 7%, down from the 13% originally anticipated
- Core Q3 diluted EPS expected to fall 10-11% year over year, reversing prior guidance of a 7-9% increase
- Q4 EPS growth projected at 16-18% year over year, indicating a sharp expected recovery
- Drivers of the revision include higher pulp and petroleum-based raw material costs, European manufacturing/logistics overruns, a timing shift of a milestone payment tied to delayed U.S. approval of Actonel, and aggressive pricing in South America
- Fiscal 2001 guidance reaffirmed: 6-8% top-line growth and EPS growth at the upper end of 13-15% on the revised base
- Management will continue using free cash flow for discretionary share repurchases
03—Questions
Frequently Asked Questions
Why did P&G revise its earnings outlook if sales growth is accelerating?
Sales growth has improved, but costs rose faster than anticipated. Higher pulp and petroleum-based raw material costs were not fully offset by savings and pricing. European manufacturing, inventory, and logistics costs increased due to many simultaneous product launches during reorganization, and aggressive competitive pricing in Argentina, Brazil, and Chile pressured margins.
How much did the fiscal 2000 EPS outlook change?
Expected core diluted EPS growth for fiscal 2000 fell to about 7%, from the 13% originally anticipated. Q3 core EPS is now expected to decline 10-11% year over year, versus prior guidance of a 7-9% increase, while Q4 EPS growth is expected at 16-18%.
Is the delay in Actonel approval a long-term problem?
The impact is primarily a timing issue. A milestone payment and minor asset sales were shifted from January-March to April-June, mainly because U.S. approval of the osteoporosis drug Actonel was delayed. The drug had just been approved in twelve European countries, and U.S. approval was expected shortly.
What is management's outlook for fiscal 2001?
P&G reaffirmed 6-8% top-line growth and expects EPS growth at the upper end of the 13-15% range, measured on the revised fiscal 2000 base. Management also cited a strong new product pipeline, including several new-to-the-world products launching in the U.S. and ten to fifteen more over the next one to two years.
What is P&G doing to address profit growth and capital returns?
Management is re-sharpening its focus on cost reduction, adopting a more balanced approach to launching initiatives between long-term growth and near-term earnings, and emphasizing the 'P&G basics' of cost management and delivering on expectations. It will continue using free cash flow to repurchase shares under its discretionary stock repurchase program.
04—Continue