Procter & Gamble Announces Third Quarter Earnings
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P&G Announces Third Quarter Earnings
Net Sales -1%; Organic Sales +1%; Diluted Net EPS $0.93, -4%; Core EPS $0.96, +12%
CINCINNATI-- The Procter & Gamble Company (NYSE:PG) reported third quarter fiscal year 2017 net sales of $15.6 billion, a decrease of one percent versus the prior year. Organic sales increased one percent. Organic sales increased in four of five business segments. Diluted net earnings per share were $0.93, a decrease of four percent versus the prior year while core earnings per share increased 12% to $0.96. Currency-neutral core EPS increased 15% versus the prior year.
Operating cash flow was $3.0 billion for the quarter. Adjusted free cash flow productivity was 90%. The Company returned $1.8 billion of cash to shareholders as dividends and repurchased $2.0 billion of common stock. Earlier this month, P&G announced an increase in its quarterly dividend, marking the 61st consecutive year the Company has increased its dividend. P&G has been paying a dividend for 127 consecutive years since its incorporation in 1890.
“The third quarter macro environment was characterized by a slowdown in market growth, continued geopolitical disruptions and foreign exchange challenges,” said David Taylor, Chairman, President and Chief Executive Officer. “Against this backdrop, we delivered modest organic sales growth and double-digit Core EPS growth, and we increased the quarterly dividend for the 61st consecutive year. Looking forward, we are maintaining our organic sales and Core EPS guidance ranges for the year and increasing our outlook for adjusted free cash flow productivity.”
January - March Quarter Discussion
Net sales in the third quarter of fiscal year 2017 were $15.6 billion, a decrease of one percent versus prior year, including a negative two percent impact from foreign exchange. Organic sales increased one percent driven by a one percent increase in organic shipment volume. Pricing and mix had no net impact on sales for the quarter. All-in volume was unchanged including the impacts of minor brand divestitures.
- Beauty segment organic sales increased one percent versus year ago behind growth in Skin & Personal Care. Organic sales increased low single digits in Skin & Personal Care as the continued growth of the super-premium SK-II skin care brand offset lower volume in retail skin care. Organic sales in Hair Care were unchanged.
- Grooming segment organic sales decreased six percent due to lower volume and reduced pricing in Shave Care. Organic sales decreased high single digits globally in Shave Care due to competitive impacts in the U.S. Organic sales were up high single digits in Appliances driven by the continued success of innovation on Braun male shavers as well as styling tools.
- Health Care segment organic sales increased six percent behind higher organic volume in both Oral Care and Personal Health Care. Product innovation on power toothbrushes and continued marketing support drove a low single-digit increase in organic sales in Oral Care while Personal Health Care was up double digits due to market growth in the U.S. behind a strong cough & cold season along with increased pricing outside the U.S.
- Fabric and Home Care segment organic sales increased one percent versus year ago driven by higher organic volume in both Fabric Care and Home Care along with increased pricing in Fabric Care. Home Care organic sales decreased low single digits as increased volume due to product innovation and increased customer support was more than offset by unfavorable geographic mix. Fabric Care organic sales increased low single digits due to increased organic volume and favorable product mix from premium forms in developed markets and increased pricing in developing markets.
- Baby, Feminine and Family Care segment organic sales increased one percent driven by volume growth in Family Care and favorable mix in Feminine Care. Baby Care organic sales decreased low single digits due mainly to competitive activity. Feminine Care organic sales increased mid-single digits from favorable product mix due to Always Discrete premium innovation. Family Care organic sales grew low single digits driven primarily by product innovation and increased marketing support.
Diluted net earnings per share were $0.93, a decrease of four percent versus the prior year. Diluted net earnings per share from continuing operations were also $0.93, which is an increase of 15% versus the base period. Current year results included non-core restructuring charges of $0.03 per share. Core earnings per share, which exclude non-core restructuring charges, were $0.96, an increase of 12% versus the prior year. Currency-neutral core earnings per share increased 15% for the quarter.
Reported gross margin was unchanged, including a 40 basis point decrease in non-core restructuring charges versus the prior year. Core gross margin decreased 40 basis points, including 20 basis points of negative foreign exchange impacts. On a currency-neutral basis, core gross margin decreased 20 basis points as 210 basis points of productivity savings were more than offset by 100 basis points of unfavorable geographic and product mix, 80 basis points of commodity cost increases and 50 basis points of product reinvestments and other impacts.
Selling, general and administrative expense (SG&A) as a percent of sales decreased 40 basis points on a reported basis versus the prior year, including a 10 basis point net benefit from a year-on-year decline in non-core charges. Core SG&A as a percentage of sales decreased 30 basis points versus the prior year. Savings of 50 basis points from overhead and marketing productivity and a 110 basis point benefit in other operating income were partially offset by a 130 basis point impact from investments in marketing, sales resources, and research and development.
Reported operating profit margin increased 40 basis points. Core operating profit margin decreased 10 basis points versus the prior year, including 20 basis points of foreign exchange impacts. On a currency-neutral basis, core operating profit margin increased 10 basis points including productivity cost savings of 260 basis points for the quarter.
Fiscal Year 2017 Guidance
P&G said it is maintaining its guidance for organic sales growth in the range of two to three percent for fiscal 2017. Fiscal year to date, the Company is at the low end of this range. The Company expects the combined headwinds of foreign exchange and minor brand divestitures to reduce sales growth by two to three percentage points. As a result, P&G estimates all-in sales to be down one percent to in-line with the prior fiscal year.
The Company also maintained its expectation for core earnings per share growth of mid-single digits versus fiscal 2016 Core EPS of $3.67. All-in GAAP earnings per share are expected to increase 48% to 50% versus fiscal year 2016 GAAP EPS of $3.69. The fiscal 2017 GAAP EPS estimate includes approximately $0.12 per share of non-core restructuring costs and $0.13 per share of charges related to early debt retirement that was executed in the second quarter. Also included in GAAP EPS is the $1.95 gain from the divestiture of 41 Beauty Brands to Coty in a transaction that was completed in the second quarter.
P&G said it is increasing fiscal year guidance for adjusted free cash flow productivity from 90% or more to approximately 95%.