P&G Reports 9% Sales Growth in Q1

Net sales increased nine percent to $22.0 billion for the quarter driven by double-digit growth in developing regions. Organic sales, which exclude the impacts of acquisitions, divestitures and foreign exchange, were up five percent for the quarter.

30/10/08 The Procter & Gamble Company has announced net sales growth of nine percent for the July - September quarter to $22.0 billion. Organic sales were up five percent, delivering at the mid-point of the Company's four to six percent target range. Sales growth was led by strong growth in the Beauty, Fabric Care & Home Care and Baby Care & Family Care segments. Diluted net earnings per share increased 12 percent to $1.03 for the quarter.

"This quarter was yet another example of the strength of P&G's balanced brand and geographic portfolio," said Chairman of the Board and Chief Executive Officer A.G. Lafley. "We continue focusing on leading innovation and improving productivity to deliver superior consumer and shareholder value. This focus on delighting consumers with trusted household and personal care products that consumers purchase weekly and use daily gives me continuing confidence P&G will deliver target growth over the long term, even in a challenging economic environment."

Diluted net earnings per share increased 12 percent to $1.03 for the quarter. Net earnings were up nine percent to $3.3 billion due to sales growth and higher non-operating gains.

Operating margin declined 60 basis points for the quarter as a reduction in selling, general and administrative (SG&A) expenses was more than offset by higher commodity costs which depressed gross margin.

Net sales for the quarter increased nine percent to $22.0 billion. Volume grew two percent for the quarter driven by Beauty, Fabric Care and Home Care and Baby Care and Family Care segments, including double-digit growth of Gillette Fusion, Head & Shoulders, Cover Girl, Gain and SK-II. Price increases added three percent to net sales. Favorable foreign exchange contributed five percent to sales growth. Disproportionate growth in developing regions and product mix shifts drove a negative one percent mix impact on sales. Organic sales increased five percent for the quarter. Several new initiatives were launched during the quarter including Always Infinity, Tide and Downy Total Care, Crest Pro-Health Whitening Paste, Pampers Swaddlers Sensitive & UnderJams and Dawn Hand Renewal.

Net earnings increased nine percent to $3.3 billion on strong sales growth and higher non-operating gains from planned divestitures. Diluted net earnings per share increased 12 percent for the quarter to $1.03. Operating margin was down 60 basis points due to a commodity-driven decline in gross margin which more than offset lower SG&A expenses as a percentage of sales.

Gross margin declined by 240 basis points to 50.5% during the quarter. Higher commodity and energy costs were partially offset by the impact of price increases and manufacturing cost savings.

SG&A expenses were down 180 basis points for the quarter to 29.2% of net sales primarily due to scale leverage, overhead productivity improvements and the positive impact of foreign transaction gains on working capital balances caused by strengthening of the U.S. dollar late in the quarter.

Operating cash flow was up one percent to $3.3 billion for the quarter behind earnings growth. Free cash flow, defined as operating cash flow less capital expenditures, was $2.6 billion during the quarter and 76% of net earnings. Capital expenditures were 3.2% of net sales during the quarter.

The company reiterated that it maintains credit ratings in the top five percent of all publicly traded companies which should allow the company to continue accessing credit markets without issue.

For the 2009 fiscal year, the company expects organic sales to grow by four to six percent, in line with its long term target range and unchanged versus prior guidance. The combination of pricing and product mix is expected to impact sales growth by a positive two to three percent. Foreign exchange is expected to have a negative impact of one to two percent. The net impact of acquisitions and divestitures is estimated to lower net sales by one to two percent. Total sales are expected to increase one to three percent. This is a decrease of four percent versus the company's previous guidance range due to foreign exchange.

The Company also widened its earnings per share outlook range to $4.15 to $4.25. This maintains the high end of the Company's previous outlook, but recognizes the continued volatility in commodity and energy markets and increasing volatile foreign exchange markets. The company's outlook includes an estimated $0.50 per share of gain from the Folgers transaction and about $0.12 per share of incremental restructuring charges. Operating margin and tax rate guidance was unchanged.

For the October - December quarter, organic sales are expected to grow four to six percent. The combination of pricing and product mix is expected to contribute about four percent to sales growth. Foreign exchange is expected to have a negative impact of two to three percent. The net impact of acquisitions and divestitures is estimated to have a negative two percent impact on sales growth. Total sales are expected to be negative one to positive two percent.

The Company expects earnings per share to be in the range of $1.45 to $1.50 for the quarter, including the estimated $0.50 per share of Folgers gain and $0.03 per share of additional Folgers-related restructuring charges. Operating margin is expected to decline modestly as overhead productivity improvements will be more than offset by lower gross margins.