01—Abstract
Summary
Summary of the 8-K filed July 31, 2003. Cited figures are marked; the original filing is the authoritative source.
Procter & Gamble reported fiscal 2003 results (quarter and year ended June 30, 2003) that beat expectations, driven by broad-based top-line growth and margin improvement.
For the April-June quarter, net sales rose 7% reported (8% excluding restructuring-affected prior-year figures) to $10.92 billiona, with unit volume up 5% and organic volume up 6%. Reported diluted EPS was $0.68 (up 6%), but this included $261 million after-tax restructuring charges. Excluding restructuring, core net earnings grew 12% to $1.22 billion and core diluted EPS rose 13% to $0.87.
For the full fiscal year, net sales reached $43.38 billionb (up 8%), reported net earnings were $5.19 billion (up 19%, $3.69 per diluted share), and core diluted EPS was $4.08 (up 14%). Cash generation was a standout. Operating cash flow for the year was $8.70 billion (up 12%), and free cash flow reached a record $7.22 billion (up 19%).
Beauty care and health care were the strongest segments, with beauty care earnings up 23% for the year and health care earnings up 35%. Snacks and beverages was the weak spot, hurt by a tornado at its Jackson, Tenn. facility and by lower coffee and juice volume. The company also raised its annual dividend 11% to $1.82c per share, its 48th consecutive annual increase, and said it had secured roughly 85% of Wella AG's shares, with closing expected in September 2003.
Looking ahead, P&G guided fiscal 2004 volume growth of 5-7%d (excluding acquisitions and divestitures), sales growth toward the top of its 4-6% long-term range before FX, and double-digit EPS growth. For the July-September quarter, it expects volume up 5-7% and EPS in line with consensus. The company also said it will stop reporting core earnings in fiscal 2004, as the restructuring program under Organization 2005 is substantially complete.
02—Key points
Key Highlights
- Fiscal 2003 core diluted EPS rose 14% to $4.08; reported diluted EPS rose 19% to $3.69, with $538 million of after-tax restructuring charges in the year.
- Fiscal 2003 net sales grew 8% to $43.38 billion, with unit volume up 8%; organic sales were up about 6% excluding FX.
- April-June quarter core net earnings grew 12% to $1.22 billion, and reported net earnings rose 5% to $955 million after $261 million of restructuring charges.
- Free cash flow hit a record $7.22 billion for the year (up 19%), and operating cash flow reached $8.70 billion (up 12%).
- Gross margin for the year was 49.0%, up 120 basis points, and operating margin reached 18.1%, up 150 basis points on a reported basis.
- Beauty care (earnings up 23%) and health care (earnings up 35%) led growth, while snacks and beverages was hurt by the Jackson, Tenn. tornado.
- Dividend increased 11% to $1.82 per share, the 48th consecutive annual increase; the Wella AG acquisition (about 85% of shares secured) is expected to close in September 2003.
03—Questions
Frequently Asked Questions
What drove the difference between reported and core earnings?
Reported results include restructuring charges tied to the Organization 2005 program, which began in 1999. In the April-June quarter those charges were $261 million after tax, and for the full year they were $538 million. Core earnings exclude these charges, so they show the underlying trend. Core EPS grew 13-14%, versus 5-6% growth in reported EPS for the quarter.
What is the outlook for fiscal 2004?
P&G expects volume growth of 5-7% excluding acquisitions and divestitures, and sales growth toward the top of its 4-6% long-term range before FX. FX is expected to add 1-2% to sales. EPS is expected to grow double digits, in line with the company's long-term objective and consensus. For the July-September quarter, volume is projected to rise 5-7% and sales to grow mid-to-high single digits.
Why is P&G stopping core earnings reporting?
The restructuring program is substantially complete as of fiscal year-end 2003. Going forward, P&G says productivity and margin projects will be absorbed in normal operating costs rather than reported separately, so it will stop reporting core earnings in fiscal 2004.
How strong was cash generation?
Very strong. Operating cash flow was $8.70 billion, up 12%, and free cash flow was a record $7.22 billion, up 19%. Most of the improvement came from higher earnings, with lower capital spending also contributing. Capital expenditures fell to $1.48 billion from $1.68 billion.
What happened with the Wella acquisition and the Snacks business?
P&G had secured 79.17% of Wella's registered share capital and 84.9% of its outstanding share value as of the filing, with closing expected in September 2003. Snacks and beverages was the weak segment: a tornado disrupted its Jackson, Tenn. plant, pushing quarterly earnings down 20% and fiscal-year sales flat.
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