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P&G Announces Fourth Quarter and Fiscal Year 2018 Results

July 31, 2018

CINCINNATI--(BUSINESS WIRE)--Jul 31, 2018--The Procter & Gamble Company (NYSE:PG) reported fourth quarter fiscal year 2018 net sales of $16.5 billion, an increase of three percent versus the prior year period. Organic sales increased one percent for the quarter driven by a three percent increase in organic shipment volume. Diluted net earnings per share were $0.72, a decrease of 12% versus the prior year period due to higher non-core restructuring charges and early debt extinguishment costs. Core earnings per share were $0.94, an increase of 11% versus the prior year period. The Company generated $4.2 billion of operating cash flow in the quarter, with adjusted free cash flow productivity of 158%.

For fiscal year 2018, net sales were $66.8 billion, a three percent increase versus the prior year. Organic sales increased one percent for the year driven by a two percent increase in organic shipment volume. Diluted net earnings per share were $3.67, a decrease of 34% versus the prior year primarily due to the Beauty Brands divestiture gain in the base period. Core earnings per share were $4.22, an increase of eight percent versus the prior year period. The Company generated $14.9 billion of operating cash flow in fiscal 2018, with adjusted free cash flow productivity of 104%. P&G returned approximately $14.3 billion of value to shareowners in fiscal 2018 through the combination of $7.3 billion of dividend payments and $7.0 billion of direct share repurchases.

“We made important progress in fiscal 2018,” said David Taylor, Chairman, President and Chief Executive Officer. “We delivered strong volume and consumption growth, market share trends improvement, Core EPS and cash generation results above going-in targets, albeit with organic sales slightly below target. We are operating in a very dynamic environment affecting the cost of operations and consumer demand in our categories and against highly capable competitors. We will accelerate change in the organization and culture to meet these challenges. We will continue to drive cost and cash productivity improvements, and we will invest in the superiority of our products, packages and demand creation programs. All of these efforts are aimed at delivering balanced top-line and bottom-line growth that creates shareholder value over the short, mid and long term.”

April - June 2018 Quarter Discussion

Net sales in the April - June quarter were $16.5 billion, an increase of three percent versus the prior year period including a two percent positive impact from foreign exchange. Organic sales increased one percent on a three percent increase in organic volume. All-in volume increased two percent. Pricing reduced net sales by two percent due primarily to increased merchandising investments.

Beauty segment organic sales increased seven percent versus year ago. Skin and Personal Care organic sales increased double digits driven by product and packaging innovation, increased investments to strengthen consumer communication and positive product mix from the disproportionate growth of the super-premium SK-II brand and Olay Skin Care. Hair Care organic sales increased mid-single digits due to product innovation and improved retail execution. Grooming segment organic sales decreased three percent. Shave Care organic sales decreased low single digits due to investments to improve consumer and customer value, primarily in the North America region. Appliances organic sales decreased low single digits due to trade inventory reductions. Health Care segment organic sales increased one percent for the quarter. Oral Care organic sales increased low single digits due to product innovation, partially offset by the reversal of a U.S. toothpaste list price increase taken last year. Personal Health Care organic sales increased low single digits driven by higher shipments and increased pricing. Fabric & Home Care segment organic sales increased two percent for the quarter. Fabric Care organic sales increased low single digits driven by product innovation and improved retail execution, partially offset by increased investments in consumer and customer value. Home Care organic sales were unchanged. Baby, Feminine & Family Care segment organic sales decreased two percent versus prior year. Baby Care organic sales decreased high single digits due to market contraction in certain markets in the Middle-East, Africa and Latin America, volume declines following reduced deep-discounting by retailers versus the prior year period and consumer value investments to restore competitiveness, primarily on the Luvs brand. Feminine Care organic sales increased low single digits due to innovation and favorable product mix from the disproportionate growth of Always Discreet. Family Care organic sales increased low single digits due to product innovation and improved retail execution, partially offset by negative pack-size mix.

Diluted net earnings per share were $0.72, a decrease of 12% versus the prior year primarily due to higher non-core restructuring charges and early debt retirement costs. Core earnings per share were $0.94, an increase of 11% versus the prior year driven primarily by the increase in net sales, a lower core effective tax rate and reduction in shares outstanding, partially offset by a lower core operating profit margin. Excluding the impact of foreign exchange, currency-neutral core earnings per share increased 12%.

Reported gross margin decreased 310 basis points, including 170 basis points due to higher non-core restructuring charges. Core gross margin declined 140 basis points, including 40 basis points of negative foreign exchange impacts. On a currency-neutral basis, core gross margin decreased 100 basis points, as 270 basis points of manufacturing cost savings were more than offset by 110 basis points of commodity and shipping cost increases, 80 basis points of unfavorable pricing impacts, 60 basis points of product and packaging and innovation start-up investments and 120 basis points of unfavorable mix and other impacts.

Selling, general and administrative expense (SG&A) as a percentage of sales declined approximately 90 basis points on a reported basis versus the prior year, including approximately 20 basis points of higher non-core restructuring charges. Core SG&A as a percentage of sales declined 120 basis points, including approximately 20 basis points of negative foreign exchange impacts. On a currency-neutral basis, core SG&A declined 130 basis points versus the prior year driven primarily by 80 basis points of productivity savings from the combination of overheads and non-working advertising spending (agency fee and advertising production costs). Working media spending increased as a percentage of sales versus prior year.

Reported operating profit margin decreased 210 basis points. Core operating profit margin decreased 30 basis points versus the prior year, including approximately 60 basis points of negative foreign exchange impacts. On a currency-neutral basis, core operating profit margin improved 30 basis points. Total productivity cost savings were 350 basis points for the quarter.

Fiscal Year 2018 Results

Fiscal year 2018 net sales were $66.8 billion, an increase of three percent versus the prior year, including a two percent positive impact from foreign exchange. Organic sales grew one percent on a two percent increase in organic volume. Diluted net earnings per share were $3.67, a decrease of 34% versus the prior year, primarily due to the Beauty brands divestiture gain in the base period. Core earnings per share were $4.22, an increase of eight percent. Excluding the impact of foreign exchange, currency-neutral core earnings per share increased six percent for the year.

Operating cash flow was $14.9 billion for the year. Adjusted free cash flow productivity was 104%. In total, the Company returned $14.3 billion in value to shareholders via $7.3 billion in dividends paid to shareholders and $7 billion of common stock repurchase. P&G announced a four percent increase to the quarterly dividend in April, making this the 62 nd consecutive year of dividend increases.

Fiscal Year 2019 Guidance

The Company is projecting organic sales growth in the range of two to three percent for fiscal year 2019. P&G estimates all-in sales growth in the range of in-line to up one percent for fiscal 2019, including a headwind of about two percent from the combination of foreign exchange and acquisitions & divestitures. P&G expects core earnings per share growth of three to eight percent for fiscal 2019 versus core EPS of $4.22 in fiscal 2018. At the midpoint of the range, fiscal 2019 Core EPS guidance is $4.45. This outlook includes an estimated $0.9 billion headwind from foreign exchange and higher commodity costs. P&G expects the core effective tax rate for fiscal 2019 to be in the range of 19% to 20%. The benefit from a lower tax rate is expected to be offset by higher net interest expense and lower non-operating income. The Company said that GAAP earnings per share are expected to increase 16% to 23% versus fiscal year 2018 GAAP EPS of $3.67, as the prior year includes non-recurring costs related to the U.S. Tax Act and early debt extinguishment, and fiscal 2019 includes a non-core gain from the termination of PGT Health Care joint venture with Teva Pharmaceuticals.

The Company expects adjusted free cash flow productivity of 90% or better for fiscal 2019. P&G expects to pay over $7 billion in dividends and repurchase up to $5 billion of common shares.

P&G expects organic sales and core EPS for the second half of fiscal 2019 to be stronger than the first half as higher commodity costs and foreign exchange headwinds are mitigated with pricing and productivity savings build throughout fiscal 2019. The Company noted that it is in the process of executing a line-average four percent price increase on its Pampers brand in North America and recently began notifying retailers of a five percent average list price increase on its Bounty, Charmin and Puffs brands.

Forward-Looking Statements

Certain statements in this release or presentation, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise.

Risks and uncertainties to which our forward-looking statements are subject include, without limitation: (1) the ability to successfully manage global financial risks, including foreign currency fluctuations, currency exchange or pricing controls and localized volatility; (2) the ability to successfully manage local, regional or global economic volatility, including reduced market growth rates, and to generate sufficient income and cash flow to allow the Company to affect the expected share repurchases and dividend payments; (3) the ability to manage disruptions in credit markets or changes to our credit rating; (4) the ability to maintain key manufacturing and supply arrangements (including execution of supply chain optimizations and sole supplier and sole manufacturing plant arrangements) and to manage disruption of business due to factors outside of our control, such as natural disasters and acts of war or terrorism; (5) the ability to successfully manage cost fluctuations and pressures, including prices of commodities and raw materials, and costs of labor, transportation, energy, pension and healthcare; (6) the ability to stay on the leading edge of innovation, obtain necessary intellectual property protections and successfully respond to changing consumer habits and technological advances attained by, and patents granted to, competitors; (7) the ability to compete with our local and global competitors in new and existing sales channels, including by successfully responding to competitive factors such as prices, promotional incentives and trade terms for products; (8) the ability to manage and maintain key customer relationships; (9) the ability to protect our reputation and brand equity by successfully managing real or perceived issues, including concerns about safety, quality, ingredients, efficacy or similar matters that may arise; (10) the ability to successfully manage the financial, legal, reputational and operational risk associated with third-party relationships, such as our suppliers, distributors, contractors and external business partners; (11) the ability to rely on and maintain key company and third party information technology systems, networks and services, and maintain the security and functionality of such systems, networks and services and the data contained therein; (12) the ability to successfully manage uncertainties related to changing political conditions (including the United Kingdom’s decision to leave the European Union) and potential implications such as exchange rate fluctuations and market contraction; (13) the ability to successfully manage regulatory and legal requirements and matters (including, without limitation, those laws and regulations involving product liability, intellectual property, antitrust, data protection, tax, environmental, and accounting and financial reporting) and to resolve pending matters within current estimates; (14) the ability to manage changes in applicable tax laws and regulations including maintaining our intended tax treatment of divestiture transactions; (15) the ability to successfully manage our ongoing acquisition, divestiture and joint venture activities, in each case to achieve the Company’s overall business strategy and financial objectives, without impacting the delivery of base business objectives; and (16) the ability to successfully achieve productivity improvements and cost savings and manage ongoing organizational changes, while successfully identifying, developing and retaining key employees, including in key growth markets where the availability of skilled or experienced employees may be limited. For additional information concerning factors that could cause actual results and events to differ materially from those projected herein, please refer to our most recent 10-K, 10-Q and 8-K reports.

About Procter & Gamble

P&G serves consumers around the world with one of the strongest portfolios of trusted, quality, leadership brands, including Always®, Ambi Pur®, Ariel®, Bounty®, Charmin®, Crest®, Dawn®, Downy®, Fairy®, Febreze®, Gain®, Gillette®, Head & Shoulders®, Lenor®, Olay®, Oral-B®, Pampers®, Pantene®, SK-II®, Tide®, Vicks®, and Whisper®. The P&G community includes operations in approximately 70 countries worldwide. Please visit  http://www.pg.com  for the latest news and information about P&G and its brands.

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