01—Abstract
Summary
Summary of the 8-K filed June 5, 2003. Cited figures are marked; the original filing is the authoritative source.
On June 5, 2003, Procter & Gamble (NYSE: PG) issued a Regulation FD news release confirming that earnings per share for the April to June 2003 quarter should land at the high end of its prior guidance range.
Management described the results as driven by solid organic volume and sales growth and gross margin improvements, despite a disruption to the Pringles business after a tornado struck its Jackson, Tennessee manufacturing facility on May 4, 2003. The plant resumed production and shipments in about two weeks, but damaged inventory will still cause lost sales in the quarter, so P&G lowered its volume and sales growth expectations accordingly. The revised outlook calls for total volume growth of roughly 4%a to 6% and organic volume growth of about 5% to 7%, with health care, baby and family care, and developing-market geographies leading.
Total sales growth is now expected at 6%b to 7%, including a 3% to 4% contribution from foreign exchange and a 1% drag from acquisitions and divestitures. Organic sales growth of 4% to 5% remains within the company's long-term growth range for internally generated sales. Core EPS, which excludes restructuring charges, is expected to grow about 12%, at the high end of prior guidance and in line with consensus, while reported EPS growth will trail core EPS as previously guided.
For investors, the key takeaway is that the Pringles tornado disruption trimmed top-line expectations but did not impair earnings guidance. Core operating margin is expected to improve by 20 to 50 basis points, supported by gross margin gains partially offset by marketing investment. The company also reiterated its prior cautionary forward-looking statements, including risks tied to the Wella integration, competitive intensity, currency and commodity exposure, and Latin American and Middle East political and economic uncertainty.
02—Key points
Key Highlights
- Q4 FY2002/03 (April to June 2003) core EPS expected to grow approximately 12%, at the high end of prior guidance and in line with consensus estimates.
- A May 4, 2003 tornado struck the Pringles plant in Jackson, Tennessee; production resumed in about two weeks, but inventory damage will cause lost sales in the quarter.
- Total volume growth now expected at +4% to +6%; organic volume growth (excluding a 1% acquisition/divestiture drag) at +5% to +7%.
- Total sales growth guided to +6% to +7%, with foreign exchange adding 3% to 4%; organic sales growth of +4% to +5% remains within long-term targets.
- Core operating margin expected to improve 20 to 50 basis points, driven by gross margin gains partially offset by marketing investments.
- Reported EPS, which includes restructuring charges, is expected to grow more slowly than core EPS, consistent with prior guidance.
- Health care, baby and family care, and developing-market geographies continue to lead volume growth.
03—Questions
Frequently Asked Questions
Did P&G change its earnings guidance in this update?
No. P&G confirmed that earnings per share should be at the high end of its prior guidance range, with core EPS growth of about 12%. The company did, however, lower its volume and sales growth expectations to reflect the Pringles disruption.
How much did the Pringles tornado affect results?
The tornado damaged inventory at the Jackson, Tennessee plant, and although production resumed in about two weeks, the damaged inventory will cause lost sales in the April to June 2003 quarter. The company did not quantify the dollar impact in this release.
What is the difference between core and reported EPS?
Core EPS excludes restructuring program charges. Reported EPS includes those charges, so its growth rate is expected to be lower than core EPS growth, consistent with prior guidance.
Which parts of the business are driving growth?
P&G said its health care and baby and family care business units, along with developing market geographies, continue to lead volume growth. Solid gross margin improvements also supported the quarter's results.
What risks does management highlight?
The release cites the achievement of cost savings from organizational changes, competitive activity, key customer relationships, growth in developing markets, regulatory and legal matters, currency and commodity exposures, political and economic uncertainty in Latin America and the Middle East, and successful integration of the Wella acquisition.
04—Continue