01—Abstract
Summary
Summary of the 8-K filed June 15, 2001. Cited figures are marked; the original filing is the authoritative source.
On June 15, 2001, Procter & Gamble filed an 8-K furnishing a press release summarizing remarks by CEO A.
G. Lafley at a New York securities analysts meeting. Lafley said P&G will meet its financial commitments for fiscal 2001 (ending June 2001), with fourth-quarter core earnings in line with estimates, operating profit growth of at least mid-single digits, and low-single-digit sales growth excluding foreign exchange.
He framed the company as back on a growth path, citing three consecutive quarters of core EPS growth and share gains on most big U.S. brands, and reiterated a strategy of focusing on core categories (baby care, laundry, feminine care, hair care), higher-margin beauty and health businesses, and top countries and customers, with a renewed push in Western Europe. For fiscal 2002, P&G reaffirmed earlier guidance: core EPS growth faster than fiscal 2001 but not yet at the double-digit target, sales growth ex-FX faster than the current year but below the 4-6%a long-term goal, low-single-digit volume growth, and roughly a 1% negative FX impact on sales. Guidance excludes the Clairol acquisition, the planned snacks and juice LLC with The Coca-Cola Company, the Jif/Crisco divestiture, and goodwill accounting changes.
The most material item for investors is the restructuring update. The Organization 2005 program's expansion now carries about $900 millionb in portfolio-related charges (up from the $400-800 million range given in March), with about $650 million non-cash and only $250 million cash. Enrollment-reduction charges are estimated at $1.4 billion.
Total after-tax charges across the program are about $4.4 billionc, against roughly $2.0 billion of cumulative after-tax savings by fiscal 2004. The company expects a net loss for the April-June 2001 quarter because of about $1.2 billion in after-tax restructuring charges.
02—Key points
Key Highlights
- Management confirmed fiscal 2001 commitments: fourth-quarter core earnings in line with estimates, operating profit growth of at least mid-single digits, and low-single-digit sales growth ex-FX.
- Fiscal 2002 guidance reaffirmed: core EPS growth above fiscal 2001 but below the double-digit target; sales ex-FX growth above the current year but below the 4-6% long-term goal; low-single-digit volume growth.
- Foreign exchange expected to reduce fiscal 2002 top-line growth by about 1%, with management noting continued currency volatility makes prediction difficult.
- Portfolio-choice restructuring charge raised to about $900 million (from $400-800 million in March), with roughly $650 million non-cash and only $250 million cash, yielding about $100 million in annual cash savings starting fiscal 2002.
- Organization 2005 enrollment reductions expected to cost $1.4 billion, with $600-700 million in after-tax savings by fiscal 2004; most charges and about one-third of annual savings fall in fiscal 2002.
- Q4 fiscal 2001 (April-June 2001) expected to include about $1.2 billion in after-tax restructuring charges, producing a reported net loss for the quarter.
- Strategic portfolio actions include the planned snacks and juice LLC with The Coca-Cola Company, the Clairol acquisition, the Jif and Crisco sale or swap, and exits from non-core brands such as Olay cosmetics phase-out and Secret scale-back in Western Europe.
03—Questions
Frequently Asked Questions
Will P&G meet its fiscal 2001 financial commitments?
Management said it will. It expects fourth-quarter core earnings in line with estimates, operating profit growth of at least mid-single digits, and sales growth in the low single digits excluding foreign exchange. It also said it will end the year with three consecutive quarters of core earnings and EPS growth.
What is the outlook for fiscal 2002?
P&G reaffirmed earlier guidance. Core EPS should grow faster than in fiscal 2001 but not yet at the double-digit target. Sales ex-FX should grow faster than the current year but not yet at the 4-6% long-term goal, with low-single-digit volume growth and about a 1% negative FX impact. The guidance excludes Clairol, the Coca-Cola LLC, the Jif/Crisco divestiture, and goodwill accounting changes.
How large are the restructuring charges and what will they cost in cash?
The expanded Organization 2005 program now carries about $900 million in portfolio-related charges, of which about $650 million is non-cash and $250 million is cash. Enrollment-reduction charges are about $1.4 billion. Across the program, after-tax charges total about $4.4 billion, against roughly $2.0 billion of after-tax savings through fiscal 2004.
Will P&G report a loss this quarter?
The company expects a loss in reported net earnings for the April-June 2001 quarter. It projects about $1.2 billion in after-tax restructuring charges for that quarter, including $800 million for scaling back or discontinuing under-performing businesses, $200 million for the initial program, and $200 million for enrollment reductions.
What are P&G's priorities for growth?
Management is focusing on core categories (baby care, laundry, feminine care and hair care), higher-margin beauty and health businesses such as Olay, Actonel and Crest, and its largest countries and customers. It also plans to return Western Europe to growth in the UK, Germany, France, Italy and Spain, and to rationalize capacity in laundry, paper and health and beauty.
04—Continue