P&G Reports $0.82 EPS, Up 11%, On 13% Operating Profit Growth

CINCINNATI, April 30 /PRNewswire-FirstCall/ -- The Procter & Gamble Company announced diluted net earnings per share growth of 11 percent to $0.82 per share. Earnings were driven by net sales growth, continuing focus on cost control and Gillette synergy benefits, which more than offset higher commodity costs. Operating profit margin improved 60-basis points, driving a 13 percent increase in operating profit. Net sales increased nine percent to $20.5 billion. Organic volume and sales were both up five percent. Five of the company's six segments delivered mid-single digit or higher organic volume growth.

"This quarter is yet another demonstration of the power of P&G's product category and geographic diversification and disciplined focus on cash and cost productivity," said A.G. Lafley, chairman of the board and chief executive officer. "P&G delivered strong results in-line with long-term targets in a challenging economic and competitive environment with broad-based sales and share growth, earnings growth and overhead cost improvement."

  Executive Summary

  -- Net sales increased nine percent to $20.5 billion on four percent
     volume growth.  Growth was broad-based as every segment delivered year-
     on-year volume and net sales growth.  Organic volume and organic sales,
     which exclude the impacts of acquisitions, divestitures and foreign
     exchange, each grew five percent.
  -- Operating profit was up 13 percent to $4.1 billion.  Operating margin
     improved 60-basis points as a result of cost savings projects, Gillette
     synergy benefits, improved overhead costs and volume leverage, which
     more than offset higher commodity costs.
  -- Diluted net earnings per share increased 11 percent to $0.82 for the
     quarter.
  -- Operating cash flow was $4.3 billion for the quarter.  Free cash flow
     was 136% of net earnings for the quarter and 109% year-to-date, well
     ahead of the company's 90% annual target.

  Financial Highlights

Net sales for the quarter increased nine percent to $20.5 billion. Volume was up four percent, including a negative one percent impact from the Western European Tissue divestiture. Favorable foreign exchange added five percent to net sales. Organic sales grew ahead of organic volume in both developed and developing regions. Disproportionate growth in developing regions drove a negative one percent mix impact. Price increases had a positive one percent impact on net sales. Volume grew primarily behind successful product initiatives and continued double-digit volume growth in developing regions. Growth was broad-based as 18 of our 22 top categories, representing over 90% of total net sales, delivered year-on-year organic volume growth. A number of the company's key brands, including Always, Ariel, Dolce & Gabbana, Febreze, Fusion, Gain, Head & Shoulders, Naturella, Pampers, Pringles, Rejoice, Venus and Vicks, delivered at least high-single digit global volume growth.

Diluted net earnings per share increased 11 percent for the quarter to $0.82 behind strong operating profit growth. Operating profit was up 13 percent as a result of higher net sales and improved operating margin. Operating margin was up 60-basis points as a reduction in overhead spending as a percent of net sales more than offset higher commodity and energy costs.

Gross margin was down 30-basis points to 51.3% of net sales during the quarter. Higher commodity and energy costs had a negative impact of over 220- basis points. Most of this negative cost impact was offset by volume leverage, pricing and cost savings projects.

Selling, general and administrative expenses (SG&A) were 31.2% of net sales, an 80-basis point improvement versus the prior year period due to lower overhead spending as a percent of net sales. Overhead spending improved as a result of increased productivity, Gillette synergies and scale leverage. Marketing spending was up nine percent, in-line with net sales growth.

Other non-operating income for the quarter was down $159 million versus the prior-year period primarily due to higher divestiture gains and investment income in the base period. Interest expense increased $85 million largely due to higher debt levels to support the company's share repurchase program.

Operating cash flow was $4.3 billion for the quarter, driven primarily by strong earnings results, an unusually large deferred tax benefit and a decrease in accounts receivable. Free cash flow was 136% of net earnings for the quarter, well ahead of the company's 90% annual target. Capital expenditures were 3.3% of net sales during the quarter.

The company repurchased $2.6 billion of P&G stock during the quarter as part of the company's previously announced share repurchase program. The company has repurchased $8.0 billion of P&G stock since the inception of this program in July 2007, a level consistent with the company's three year $24 - $30 billion share repurchase plan. Combined with $3.4 billion in dividends, P&G has distributed $11.4 billion to shareholders fiscal year to date, or 126% of net earnings.