P&G Confident About Gilette Acquisition
The increases to the company's growth objectives are driven by the identified synergy opportunities from the P&G/Gillette combination.
"I am confident that the merger of P&G and Gillette will succeed," said A.G. Lafley, P&G chairman, president, and chief executive. "We are both industry leaders on our own, and we will be even stronger and even better together. We are ready to get on with the integration." The company's top line growth range has been increased from four to six percent excluding foreign exchange impacts to five to seven percent, for the balance of the decade. In addition, the company has set an operating margin target of about 24 percent by 2010 (including the impact of stock option expensing) -- a significant margin expansion from P&G's fiscal year 2005 operating margin of 18.5 percent.
The increases to the company's growth objectives are driven by the identified synergy opportunities from the P&G/Gillette combination. The company continues to expect cost synergies of approximately $1 to $1.2 billion before tax and an increase in the annual sales run-rate of about $750 million by 2008, the third year following the deal. The company updated its earnings per share dilution estimates to reflect the actual merger effective date of Oct. 1, 2005 and the impact from expensing stock options. For simplicity, P&G had previously provided dilution estimates assuming the deal closed on July 1, 2005. The company stated that it expects earnings per share dilution to be in the range of 20 to 26 cents in fiscal year 2006 and 12 to 18 cents in fiscal year 2007.
The company expects the deal to be neutral for fiscal year 2008 -- becoming accretive during the back half of fiscal 2008. This will put P&G back on track with its pre-Gillette earnings growth target for fiscal year 2008. In addition, P&G stated that it expects about half of the fiscal year 2006 dilution to impact the October - December 2005 quarter. This is driven by one-time charges associated with closing the deal and a lower level of cost savings in the first three months relative to later quarters. P&G also reported that through Sept. 30, 2005, it had repurchased 156 million shares, or about $8.5 billion, as part of the previously announced share repurchase program associated with the Gillette acquisition. The announced program anticipates that the company will repurchase $18 to $22 billion of P&G stock over a 12 to 18 month period that began on Jan. 28, 2005.
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