01—Abstract
Summary
Summary of the 8-K filed September 4, 2003. Cited figures are marked; the original filing is the authoritative source.
On September 4, 2003, Procter & Gamble (NYSE: PG) issued a Regulation FD news release raising its sales and earnings per share expectations for the July to September 2003 quarter.
The company now expects organic sales growth of 9% to 11% (including roughly 2 to 3 points from foreign exchange) and EPS growth of approximately 19% to 21% versus reported prior-year EPS of $1.04a. Excluding $0.08 per share of restructuring charges in the base period, core EPS is expected to rise about 11% to 13% from prior-year core EPS of $1.12. The upside is driven by broad-based volume and share gains, very strong initial pipeline orders for the Prilosec OTC launch in health care, and continued strong momentum in developing markets, particularly China.
P&G also reaffirmed several items that matter for the outlook. The Wella AG acquisition is expected to be EPS-neutral for the quarter and for fiscal 2004, and accretive in the second year, consistent with March 2003 guidance. Management said it is comfortable with current consensus fiscal 2004 EPS estimates and that its fiscal 2004 volume and sales guidance is unchanged.
The strong start to the year gives management confidence in another year of double-digit EPS growth. Operating margin is expected to improve versus reported prior-year margin but be roughly in line with core margin, as gross margin gains are offset by reinvestment in growth and the lower-margin Wella business. Investors should note that the company is discontinuing core earnings reporting beginning in fiscal 2004, and that the restructuring program, which began in fiscal 1999, was substantially completed at the end of fiscal 2003.
Future productivity projects will have their charges absorbed in normal operating costs rather than excluded. The filing is a guidance update rather than a financial statement release, so the figures are forward-looking and subject to the risks listed in the release, including execution on acquisitions and the potential divestiture of the juice business.
02—Key points
Key Highlights
- Q1 FY2004 (Jul-Sep 2003) EPS guided up roughly 19% to 21% vs. reported $1.04; core EPS guided up 11% to 13% vs. $1.12 core base
- Organic sales expected to rise 9% to 11%, including a 2-3 point FX benefit; organic volume growth in the upper-single digits
- Prilosec OTC launch drove very strong initial pipeline orders that exceeded expectations, leading the health care volume growth
- Developing markets, particularly China, continued strong volume momentum
- Wella AG acquisition confirmed as EPS-neutral for the quarter and fiscal 2004, and accretive in its second year
- Management comfortable with current consensus FY2004 EPS estimates; FY2004 volume and sales guidance unchanged; expects another year of double-digit EPS growth
- Company discontinues core earnings reporting from FY2004; restructuring program (begun FY1999) substantially completed at end of FY2003
03—Questions
Frequently Asked Questions
How much is P&G now expecting earnings per share to grow in the July to September 2003 quarter?
P&G expects reported EPS to grow approximately 19% to 21% from $1.04 in the prior-year quarter. Excluding the $0.08 per share of restructuring charges in the base period, core EPS is expected to grow about 11% to 13% from $1.12.
What drove the raised guidance?
The company cited broad-based volume and share progress across business units and geographies, plus very strong initial orders for Prilosec OTC that exceeded expectations. Developing markets, especially China, also showed strong volume momentum.
Will the Wella acquisition affect earnings?
P&G says Wella is expected to be neutral to EPS in the September 2003 quarter and in fiscal 2004, and accretive in the second year of ownership, in line with its March 2003 projections. Wella's lower operating margins do weigh on the company's overall operating margin.
Did P&G change its fiscal 2004 outlook?
Not materially. Management said it is comfortable with current analyst consensus for FY2004 EPS, its FY2004 volume and sales growth expectations are unchanged, and the strong start supports confidence in another year of double-digit EPS growth.
Why is P&G stopping core earnings reporting?
Starting in fiscal 2004 the company will no longer report core earnings. The restructuring program that began in FY1999 was substantially completed at the end of FY2003, and future productivity-project charges will be absorbed in normal operating costs. The company will still compare results against both prior-year GAAP and core figures for the current year.
04—Continue