01—Abstract
Summary
Summary of the 8-K filed January 31, 2002. Cited figures are marked; the original filing is the authoritative source.
The Procter & Gamble Company reported second quarter fiscal 2002 results (October–December 2001) that exceeded consensus expectations and landed at the high end of its guidance, driven by record unit volume.
Unit volume rose 5% year over year (4% excluding acquisitions and divestitures), net sales grew 2% to $10.40 billiona, and reported net earnings rose 9% to $1.30 billion, or $0.93 per diluted share. Core earnings per share, which exclude restructuring charges and the prior-year goodwill amortization adjustment, increased 6% to $1.03. Results absorbed a $146 million after-tax restructuring charge, and the company is tracking ahead of schedule on its capital spending target of 6% of sales or below.
Underlying margin expansion was the main driver of profit growth. Core gross margin improved 1.8 percentage points on lower manufacturing costs and restructuring savings, and core operating margin expanded 0.9 percentage points. Beauty Care (Clairol integration, hair care) and Health Care (Actonel, Crest) led top-line growth, with Health Care sales up 17% and Crest reaching $1 billionb in annual sales.
Food and Beverage was the weak spot, with sales down 11% on a 9% volume decline reflecting a competitive merchandising environment and coffee price pass-throughs. Operating cash flow for the quarter increased $0.7 billion to $1.8 billionc. Management guided to high-single-digit volume growth for the March quarter (including Clairol), with core EPS growth in the high single digits, and reaffirmed fiscal 2002 guidance calling for core EPS growth above last year's level, though not yet at double digits.
Management noted that foreign exchange would reduce sales by two to three percent in the third quarter. Risks cited include Clairol integration, Latin American economic uncertainty, the Kmart Chapter 11 proceedings, and the Jif/Crisco spin/merge transaction.
02—Key points
Key Highlights
- Net earnings rose 9% to $1.30 billion ($0.93 per diluted share); core EPS grew 6% to $1.03, excluding a $146 million after-tax restructuring charge.
- Record quarterly unit volume grew 5% (4% excluding acquisitions and divestitures), with net sales up 2% to $10.40 billion.
- Core operating margin expanded 0.9 percentage points to 19.8%, driven by a 1.8-point gross margin improvement from lower manufacturing costs and restructuring savings.
- Health Care sales rose 17% to $1.34 billion, and Crest became a $1 billion brand; Beauty Care unit volume rose 15%, boosted by the Clairol acquisition.
- Food and Beverage sales fell 11% on a 9% volume decline, reflecting competitive merchandising and lower coffee pricing pass-throughs.
- Operating cash flow increased $0.7 billion to $1.8 billion, and capital spending fell $0.3 billion, with the company tracking ahead of its target of 6% of sales or below.
- Management guided to high-single-digit volume and core EPS growth for the March quarter and reaffirmed fiscal 2002 core EPS growth above last year's level.
03—Questions
Frequently Asked Questions
Did P&G meet its earnings expectations for the October–December 2001 quarter?
Yes. P&G said it exceeded consensus expectations and delivered at the high end of its own guidance. Core EPS of $1.03 rose 6%, and reported diluted EPS of $0.93 rose 11% (from $0.84).
What is driving P&G's margin improvement?
Core gross margin rose 1.8 percentage points to 49.4%, reflecting lower manufacturing costs and restructuring savings. Core operating margin rose 0.9 points to 19.8%, partly offset by higher marketing, research and administration costs tied to the Clairol integration and health care investments.
How much did restructuring affect results, and what does it cover?
The quarter included a $146 million after-tax restructuring charge ($189 million pre-tax), made up of $85 million in employee separation costs and $72 million in asset-related charges, tied to streamlining operations and the business portfolio. The prior-year quarter carried a $120 million after-tax charge.
What is the outlook for the next quarter and fiscal 2002?
For the March quarter, P&G expects high-single-digit volume growth (about the same underlying rate as this quarter, excluding Clairol) and high-single-digit core EPS growth. Foreign exchange should reduce sales by 2–3%. For fiscal 2002, management reaffirmed core EPS growth above last year's rate but below double digits, with volume in the mid-single digits and sales growth approaching the 4–6% target range.
Which businesses are weakest, and what risks does management flag?
Food and Beverage is the weakest segment, with sales down 11% and volume down 9% amid competitive merchandising and coffee pricing. Management cites risks including the successful integration of Clairol, the Jif/Crisco spin/merge transaction, economic and political uncertainty in Latin America, terrorism-related uncertainty, and Kmart's Chapter 11 proceedings.
04—Continue