01—Abstract
Summary
Summary of the 8-K filed March 9, 2004. Cited figures are marked; the original filing is the authoritative source.
On March 9, 2004, Procter & Gamble announced three actions: it raised its third-quarter and full fiscal-year earnings guidance, declared a two-for-one stock split, and increased its dividend for the second time in fiscal 2004.
The company now expects January-March 2004 and full-year EPS to beat current consensus by $0.01 to $0.02a, driven by organic volume growth it expects to be about 10% for the quarter, on top of an 8% base. Total quarterly sales are expected to rise about 20%, with roughly 7 to 9 points from acquisitions (primarily Wella) and 3 to 4 points from foreign exchange. The dividend rises from an annual rate of $1.82 to $2.00 per share pre-split, with a quarterly payment of $0.50 (up from $0.455) payable around May 14, 2004 to holders of record on April 23, 2004.
The 2-for-1 split, effected as a 100% stock dividend to holders of record on May 21, 2004, will distribute shares on or after June 18, 2004. After the split, the annual dividend equals $1.00b per share. The split does not change any shareholder's proportionate interest.
The company also reiterated that it will invest more in marketing, which may accelerate sales and core EPS growth but could slow near-term operating margin progress. Investors should note that the filing's Item 9 text refers to the news release date as "March 9, 2003," which appears to be a typographical error, since the release and the filing both date to 2004.
The guidance is forward-looking and subject to the risks listed in the release, including integration of Wella, a possible divestiture of the juice business, input cost increases, currency volatility, and competitive pressure. Full details are expected at the April 30, 2004 earnings release.
02—Key points
Key Highlights
- EPS guidance raised: January-March 2004 quarter and full fiscal year EPS expected to exceed consensus by $0.01 to $0.02.
- Organic volume growth of about 10% expected for the quarter, on top of a strong 8% base, broad-based across business units and geographies.
- Total sales expected to rise about 20% in the quarter, including 7-9 points from acquisitions (primarily Wella) and 3-4 points from foreign exchange.
- Two-for-one stock split in the form of a 100% stock dividend; record date May 21, 2004; shares distributed on or after June 18, 2004.
- Dividend raised from an annual rate of $1.82 to $2.00 per share pre-split (quarterly $0.50 from $0.455), marking the 48th consecutive fiscal year of increases; post-split annual rate equals $1.00.
- Increased marketing investment may accelerate sales and core EPS growth to at or above long-term targets (ninth consecutive quarter) but likely slows near-term operating margin progress.
- Long-term targets reiterated: 4-6% organic sales growth and double-digit EPS growth; next detailed update scheduled for April 30, 2004.
03—Questions
Frequently Asked Questions
Why is P&G raising its dividend and splitting its stock?
Management cited strong, balanced, consistent growth as giving the board confidence to raise the dividend a second time in fiscal 2004 and to split the stock. The split is a 100% stock dividend that doubles the share count without changing each shareholder's proportionate ownership.
Does the stock split change the value of my holdings?
Not directly. The split increases the number of shares held one-for-one, while the company states it does not change any shareholder's proportionate interest. Per-share figures such as dividends and EPS will adjust to the post-split basis, with the annual dividend becoming $1.00 per share.
How much better than expected is P&G's earnings outlook?
The company expects EPS for the January-March 2004 quarter and the full fiscal year to exceed current consensus estimates by $0.01 to $0.02. The upside is attributed to strong volume and sales performance, supported by innovation such as Prilosec OTC, Olay Regenerist, and Crest Whitening Expressions.
Will higher marketing spending hurt margins?
Probably in the near term. P&G said the increased marketing investment should help accelerate sales and core EPS growth, but it will likely result in slower near-term operating margin progress than the company expects over the long term.
What risks could affect these expectations?
The release lists risks including executing and integrating key acquisitions such as Wella, completing planned divestitures such as the potential sale of the juice business, competitive activity, currency and interest rate swings, commodity and raw material cost increases, and regulatory, tax, and legal matters including product liability.
04—Continue