P&G Fourth-Quarter Profit Up 36% on Gillette Sales

04/08/06 The Procter & Gamble Company has announced net sales growth of 25 percent during the April - June quarter to $17.84 billion and 20 percent for the fiscal year to $68.22 billion, including the addition of Gillette. Organic sales, which exclude the impacts of acquisitions, divestitures and foreign exchange, increased eight percent during the quarter and seven percent for the fiscal year.

Organic sales growth in both periods was well ahead of the company's post-Gillette organic growth target range of four to six percent and was broad-based across segments and geographies. Earnings per share increased six percent during the quarter to $0.55 and four percent during the fiscal year to $2.64. Excluding the impact of Gillette dilution, base business earnings per share increased an estimated 17% - 21% for the quarter and 12% - 13% for the fiscal year.

"This marks the fifth consecutive year in which P&G has delivered topline growth at or above the company's targets," said Chairman of the Board, President and Chief Executive A.G. Lafley. "Demand for P&G's brands is strong. We're continuing to drive P&G's business with breakthrough innovations and excellent in-market execution. This, combined with the great progress on integrating Gillette, positions P&G to deliver its growth objectives in fiscal year 2007 and beyond."

Net sales for the quarter increased 25 percent to $17.84 billion. Organic sales increased eight percent, well ahead of the company's post-Gillette organic sales target range of four to six percent. Price increases taken across several segments added one percent to sales growth. In addition, a more premium product mix, driven by product initiatives and the impact of adding the Gillette business, more than offset the negative mix impact of disproportionate growth in developing regions and contributed one percent to sales growth.

Unit volume for the April - June quarter increased 23 percent behind the addition of the Gillette business and strong six percent organic volume growth. Growth continued to be driven by successful product innovations and continued expansion in developing regions. Each business segment and every geographic region increased organic volume during the quarter, led by double- digit growth in developing regions.

Net earnings during the quarter increased 36 percent to $1.90 billion. Net earnings increased behind strong organic sales growth, the addition of the Gillette business and significant margin improvements across most business segments. Diluted net earnings per share increased six percent to $0.55, including an estimated $0.06 - $0.08 dilution impact from Gillette. The Gillette dilution estimate includes approximately $0.04 per share of one-time items.

Gross margin improved by 150-basis points to 50.2% during the quarter. Commodity costs had a negative impact on gross margin of about 100 basis points. Organic volume growth, pricing and cost savings projects more than offset commodity cost increases. The mix benefit from adding the Gillette businesses contributed approximately 125-basis points.

Selling, general and administrative expenses (SG&A) were 33.6% of net sales, in-line with the prior-year period. The scale benefits of strong organic sales growth in the quarter offset acquisition and integration expenses related to Gillette.

Operating cash flow was $3.19 billion during the quarter, an increase of 53 percent versus the base period. Operating cash improved behind the addition of the Gillette business, earnings growth on the base business and an improvement in working capital. Working capital was a net cash improvement due primarily to a focus on inventory management across the company. Inventory days on hand were down approximately eight days versus the prior year period on the base P&G business. Free cash flow, defined as operating cash flow less capital expenditures, was $2.19 billion during the quarter. Free cash flow productivity was 115%. Capital expenditures were 5.6% of net sales during the quarter, leading to a fiscal year expenditure level of 3.9%, slightly below the company's four percent capital expenditure target.

During the June quarter, the company repurchased $4.0 billion of P&G stock under the previously announced Gillette share repurchase program. The company completed its share repurchases under this program in July. The total value of shares purchased under the program was $20.1 billion. Going forward, the company has now resumed its discretionary share repurchases.