01—Abstract
Summary
Summary of the 8-K filed October 31, 2000. Cited figures are marked; the original filing is the authoritative source.
Procter & Gamble's 8-K (Item 5, filed under the proposed Regulation FD) furnishes its October 31, 2000 first-quarter fiscal 2000/01 earnings release, covering the quarter ended September 30, 2000.
Reported net earnings were $1.155 billiona, or $0.82 diluted EPS, up 1% in dollars and 3% per diluted share versus the prior year. Those results include an $85 million after-tax charge (about $107 million pre-tax) tied to the Organization 2005 restructuring program. Excluding those charges, core net earnings were $1.24 billion, down 2% year over year, and core diluted EPS was flat at $0.88.
Net sales rose 1% to $9.97 billionb, or 4% excluding currency effects, primarily from the euro. The quality of the quarter was weaker than the headline suggests. Core operating margin fell 130 basis points to 18.9% and gross margin fell 120 basis points to 47.4%, driven by significant commodity cost increases and unfavorable exchange rates that more than offset pricing gains and the premium-product mix.
Management characterized the quarter as in line with expectations. Fabric and Home Care sales fell 3%c and Food and Beverage sales fell 13%, with snacks and juice weakness, while Health Care (Iams pet business) was the clear bright spot with 24% sales growth. Beauty Care earnings rose 19%.
Looking ahead, P&G reaffirmed its guidance for second-quarter core EPS growth in the mid-single digits, a range of $0.91 to $0.93d. It expects October-December sales ex-FX to be up slightly, with volume down in the low single digits, and it cited continued minor brand divestitures (including Clearasil) as a support. Management emphasized that the strong prior-year base makes the coming quarter challenging, so investors should watch whether margin pressure from commodity costs eases.
02—Key points
Key Highlights
- Reported Q1 FY2000/01 net earnings of $1.155B ($0.82 diluted EPS), up 1% in dollars; core net earnings of $1.24B ($0.88 EPS) were down 2% and flat per share.
- Organization 2005 restructuring charge of $85M after-tax ($107M pre-tax) reduced reported results.
- Net sales rose 1% to $9.97B; up 4% excluding currency, mainly the euro, with volume flat.
- Core gross margin fell 120 bps to 47.4% and core operating margin fell 130 bps to 18.9%, reflecting commodity cost inflation and FX.
- Health Care was the standout segment, with sales up 24% to $990M and unit volume up 34%, led by the Iams acquisition; Food and Beverage sales fell 13% and earnings fell 29%.
- Reaffirmed Q2 guidance for core EPS of $0.91 to $0.93 (mid-single-digit growth), with Oct-Dec sales ex-FX expected up slightly and volume down low single digits.
- Filed under the proposed Regulation FD, so the earnings release was publicly disseminated to all investors simultaneously.
03—Questions
Frequently Asked Questions
Did P&G meet its own earnings expectations this quarter?
Yes. The company titled its release 'P&G Meets First Quarter Expectations' and reported core diluted EPS of $0.88, flat with the prior year. Reported EPS of $0.82 was up 3%, but that figure includes the Organization 2005 restructuring charge. Core earnings were down 2% in dollar terms because of commodity cost inflation and currency headwinds.
What is the Organization 2005 restructuring program, and what did it cost this quarter?
Organization 2005 is P&G's multi-year restructuring program. This quarter it cost $107M pre-tax, or $85M after tax, which reduced reported net earnings and EPS. The filing does not provide the total program cost or savings targets, so investors should refer to prior disclosures for those details.
Why did margins contract so sharply?
Gross margin on a core basis fell 120 basis points to 47.4%, and core operating margin fell 130 basis points to 18.9%. The company attributed this to significant commodity-related cost increases and unfavorable exchange impacts, which more than offset pricing actions and the shift toward premium-priced products. Investors should monitor whether pricing can keep pace with input costs in coming quarters.
What is P&G's outlook for the second quarter?
P&G reaffirmed guidance for core EPS growth in the mid-single digits, a range of $0.91 to $0.93 per share. Sales for October through December, excluding FX, are expected to rise slightly, with volume down in the low single digits. The company noted that the prior-year quarter was particularly strong, with volume up 6% and core earnings up 11%, which makes the comparison difficult.
Which business segments drove performance, and which weighed on results?
Health Care, led by the Iams pet business acquired in September 1999, was the strongest segment, with sales up 24% and unit volume up 34%. Beauty Care earnings rose 19%, helped by pricing and lower taxes. Food and Beverage was the main drag, with sales down 13% and earnings down 29% on snack and juice softness. Fabric and Home Care sales fell 3%, mainly due to currency, and Paper earnings fell 4%, mainly due to FX and commodity costs.
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