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Procter & Gamble FY 2013 results: Net sales up 1% to $84.2 billion, operating income up 9%

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Procter & Gamble FY 2013 results: Net sales up 1% to $84.2 billion, operating income up 9%

August 14, 2013 - 16:22
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CINCINNATI, OH, Aug. 1, 2013 (Business Wire) - The Procter & Gamble Company (PG) reported fiscal year 2013 diluted net earnings per share from continuing operations of $3.86, up 24 percent versus the prior year. Core earnings per share were $4.05, an increase of five percent versus the prior year. Net sales were $84.2 billion, an increase of one percent including a negative two point impact from foreign exchange. Organic sales grew three percent for the fiscal year.

Core earnings per share were $0.79 for the April - June quarter. Diluted net earnings per share from continuing operations were $0.64, including non-core items of $0.15 per share. Organic sales grew four percent, on five percent unit volume growth. Net sales were $20.7 billion, an increase of two percent versus the prior year period including a negative two percentage point impact from foreign exchange.

"The Company met its objectives for the fourth quarter and fiscal year, and we will build on these results in fiscal 2014," said Chairman, President and Chief Executive Officer, A.G. Lafley. "With an overriding focus on value creation, we will strengthen and accelerate productivity plans. We will continue to make choiceful investments in core brands, our biggest innovation opportunities, and in our core developed and most promising developing markets. In all we do, we will stay focused on winning with consumers, customers and shareholders."

Fiscal Year Discussion

In fiscal year 2013, results were in line with objectives set at the beginning of the fiscal year. Organic sales were in line with initial guidance, with market share trends improving throughout the year. Core earnings per share were ahead of initial projections. Cash results were also ahead of plan, with free cash flow productivity of 95%. The Company increased the quarterly dividend by seven percent and repurchased $6 billion of its shares over the fiscal year.

Net sales increased one percent to $84.2 billion for fiscal 2013. Unit volume growth contributed two percent to sales growth, and pricing added one percent. Unfavorable foreign exchange reduced net sales by two percentage points. Organic sales increased three percent, with all segments growing organic sales.

Diluted net earnings per share from continuing operations were $3.86, an increase of 24 percent versus the prior year period. Excluding non-core items, core earnings per share were $4.05, an increase of five percent versus the prior year period.

Reported and core gross margin increased 30 basis points. Manufacturing and productivity savings improved gross margin by approximately 160 basis points, and pricing improved gross margin by 70 basis points. These benefits were largely offset by product and geographic mix and manufacturing start-up costs. Core SG&A costs increased 10 basis points. Overhead cost savings from the Company's productivity program of approximately 70 basis points and the benefit of sales leverage were more than offset by the impacts of foreign exchange, marketing investments, higher employment costs and merchandising spending. Including restructuring costs and other non-core impacts, reported SG&A increased 50 basis points.

Fiscal Year 2014 Guidance

For fiscal year 2014, P&G expects organic sales growth in the range of three percent to four percent compared to underlying global market growth of about 3.5 percent. All-in sales growth is forecast in the range of one percent to two percent, including a negative foreign exchange impact of approximately two percent.

Core earnings per share are expected to grow in the range of five percent to seven percent, equal to fiscal 2013 growth at the low end of the range and within the Company's long-term, annual growth objectives at the high end of the range. P&G noted that EPS growth estimates include a six percentage point negative impact from foreign exchange. Reported earnings per share are expected to grow in the range of seven percent to nine percent, reflecting somewhat lower non-core restructuring costs in fiscal year 2014 versus the prior year.

April - June Quarter Discussion

Net sales increased two percent to $20.7 billion in the April - June quarter, including unfavorable foreign exchange of two percentage points. Organic sales grew four percent, including a unit volume increase of five percent. Geographic and category mix reduced net sales by one percentage point, while pricing was unchanged versus the prior year.

Core earnings per share, which excludes non-core items, were $0.79, a decrease of four percent versus the prior year. Diluted net earnings per share from continuing operations were $0.64, a decrease of 14 percent versus the prior year. Foreign exchange reduced earnings by $0.06 per share and non-core items lowered earnings by $0.15 per share. Current period non-core items include restructuring charges of $0.02 per share, a $0.04 per share charge for pending European legal matters, and a $0.10 per share non-cash impairment charge to adjust the carrying values of goodwill and intangible assets in the Braun Appliances business. The impairment was primarily driven by the devaluation of the Japanese Yen, as a large portion of the earnings of the Appliances business are generated in Japan.

Core operating profit margin decreased 130 basis points. Manufacturing and productivity savings of 320 basis points and sales leverage were more than offset by unfavorable foreign exchange, geographic and category mix, marketing investments, manufacturing start-up costs for new product initiatives and production capacity, and higher pension and employee benefit costs. Reported operating profit margin decreased 250 basis points.

The core effective tax rate was 22.3 percent, essentially in-line with the prior year level and slightly below the Company's guidance, contributing approximately $0.01 to core earnings per share versus expectations. The fourth quarter tax rate on all-in earnings was 25.0 percent.

Operating cash flow was $4.4 billion for the fourth quarter. Additionally, the Company repurchased $1.0 billion of common stock and returned $1.7 billion of cash to shareholders as dividends.

April - June Quarter Business Segment Discussion

Beauty Segment

Beauty segment net sales increased one percent driven by a four percent increase in unit volume, partially offset by a negative two percentage point impact from foreign exchange and one percentage point of unfavorable product mix. Sales were down in Hair Care, as volume growth was more than offset by pricing adjustments to improve consumer value and unfavorable foreign exchange. In the personal beauty categories, sales were up high single digits behind strong, innovation-driven growth in Personal Cleansing products, Cosmetics and Deodorants. Sales were down versus prior year in Skin Care due to high levels of competitive promotional activity. Prestige sales grew mid-single digits driven by new innovation. Beauty segment net earnings growth drivers were a lower effective tax rate and lower SG&A costs, partially offset by a lower gross margin.

Grooming Segment

Blades and razors net sales increased versus the prior year driven primarily by growth in developing regions due to innovation and customer inventory increases, partially offset by a decrease in developed regions driven by initiative timing and market contraction in Southern Europe. Net sales in Appliances declined due to the divestiture of the household appliances business, high levels of competitive activity, foreign exchange, and comparison against a base period that included initiative activity. Grooming segment net earnings increased, as higher pricing and manufacturing and overhead productivity savings were partially offset by an increase in marketing spending and foreign exchange.

Health Care Segment

Oral Care net sales grew due to geographic portfolio expansion and innovation-driven market share growth. Feminine Care net sales were in line with the prior year period as growth from innovation and improving share trends in North America were offset by foreign exchange. Personal Health Care delivered net sales growth due primarily to the addition of the New Chapter business. Health Care segment earnings increased due to the growth in net sales and overhead productivity savings, which were partially offset by higher marketing spending, reduced gross margin and foreign exchange.

Fabric Care and Home Care Segment

Both Fabric Care and Home Care increased net sales driven by innovation and geographic expansion. Batteries net sales were up primarily due to higher pricing and favorable product mix. Pet Care sales decreased due to the impact of the Natura pet food recall. Fabric Care and Home Care segment net earnings decreased as manufacturing and overhead productivity savings were more than offset by the costs of the Natura recall, unfavorable product mix and foreign exchange.

Baby Care and Family Care Segment

Baby Care net sales decreased, as an increase in sales from innovation and market growth in developing regions were more than offset by foreign exchange. Family Care net sales were up behind innovation in North America and Latin America and customer inventory increases at the end of the quarter ahead of early-July merchandising events. Net earnings for the segment decreased due to foreign exchange, start-up costs for new manufacturing capacity and unfavorable product and geographic mix, which were partially offset by manufacturing, marketing and overhead productivity savings.