Net Sales Unchanged; Organic Sales +2%; Diluted
Net EPS $2.88, +157%; Core EPS $1.08, +4%
Increases Organic Sales Growth Guidance for
Fiscal Year
The Procter & Gamble Company (NYSE:PG) reported second
quarter fiscal year 2017 net sales of $16.9 billion, unchanged
versus the prior year. Organic sales increased two percent. Organic
sales and organic volume increased in all five business segments.
Diluted net earnings per share were $2.88, an increase of 157%
versus the prior year, including a gain of $1.95 per share from the
Beauty Brands divestiture to Coty. Core earnings per share were
$1.08, an increase of four percent versus the prior year.
Currency-neutral core EPS increased nine percent versus the prior
year.
Operating cash flow was $3.0 billion for the quarter. Adjusted
free cash flow productivity was 82%. The Company returned $1.8
billion of cash to shareholders as dividends, repurchased $1.5
billion of common stock and exchanged shares with a value of $9.4
billion in the Beauty Brands transaction.
“We delivered good results in the second quarter in a difficult
operating environment,” said Chairman, President and Chief
Executive Officer David Taylor. “Stronger top-line performance in
the first half of the fiscal year is enabling us to increase our
organic sales growth outlook for the full year - another step
towards the levels of balanced top-line, bottom-line, and cash flow
growth that will consistently put P&G shareholder value
creation among the best in our industry.”
October - December Quarter Discussion
Net sales in the second quarter of fiscal year 2017 were $16.9
billion, unchanged versus prior year, including a negative two
percent impact from foreign exchange. Organic sales increased two
percent driven by a two percent increase in organic shipment
volume. Pricing and mix had no net impact on sales for the quarter.
All-in volume increased one percent including the impacts of minor
brand divestitures and lost sales to Venezuelan subsidiaries.
October -
December 2016
Foreign
Net
Organic
Organic
Net Sales
Drivers*
Volume
Exchange
Price
Mix
Other**
Sales
Volume
Sales
Beauty (1)% (2)% (1)% 2% 1% (1)% 2% 3% Grooming 3% (2)% 1% (4)% 1%
(1)% 4% 1% Health Care 4% (2)% 1% 2% —% 5% 4% 7% Fabric & Home
Care 1% (2)% (1)% —% 1% (1)% 2% 1% Baby, Feminine & Family Care
2% (2)% (1)% (1)% 1% (1)%
3% 1%
Total P&G 1%
(2)% —% —% 1%
—% 2% 2%
* Net sales percentage changes are approximations based on
quantitative formulas that are consistently applied.** Other
includes the sales mix impact from acquisitions/divestitures and
rounding impacts necessary to reconcile volume to net sales.
- Beauty segment organic sales increased
three percent versus year ago behind growth in both Hair Care and
Skin & Personal Care. Organic sales increased in Skin &
Personal Care due to the continued growth of the super-premium
SK-II skin care brand. Organic sales increased in Hair Care due to
innovation and marketing support on the Pantene and Head &
Shoulders brands.
- Grooming segment organic sales
increased one percent due to innovation-driven volume growth in
both Shave Care and Appliances. Organic sales increased low single
digits globally in Shave Care as higher volume outside the U.S.
from innovation and increased marketing support more than offset
negative competitive impacts in the U.S. Organic sales were up low
single digits in Appliances driven by the continued success of
premium innovation across the top markets.
- Health Care segment organic sales
increased seven percent behind higher organic volume in both Oral
Care and Personal Health Care. Product innovation drove a high
single digit increase in organic sales in Oral Care, while Personal
Health Care organic sales increased low single digits primarily due
to market growth.
- Fabric and Home Care segment organic
sales increased one percent versus year ago driven by higher volume
from innovation and marketing investments in Fabric Care along with
increased pricing in Home Care. Fabric Care and Home Care organic
sales both increased low single digits.
- Baby, Feminine and Family Care segment
organic sales increased one percent driven by organic volume growth
in all three businesses. Baby care volume increased behind product
innovation, increased marketing support and market growth. Feminine
Care and Family Care organic volume growth was driven by product
innovation. Organic sales increased low single digits in Feminine
Care and mid-single digits in Family Care while decreasing low
single digits in Baby Care due to increased promotional
investments.
Diluted net earnings per share from continuing operations were
$0.93, a decrease of eight percent versus the base period. Diluted
net earnings per share were $2.88, an increase of 157% versus the
prior year. Current year results included a $1.95 per share gain
from discontinued operations from the Beauty Brands divestiture to
Coty, which closed on October 1, 2016, non-core restructuring
charges of $0.03 per share and a non-core charge for early debt
retirement of $0.13 per share. Core earnings per share, which
exclude non-core restructuring charges, early debt retirement fees
and the results of discontinued operations, were $1.08, an increase
of four percent versus the prior year. Currency-neutral core
earnings per share increased nine percent for the quarter.
Reported gross margin increased 80 basis points, including a 10
basis point benefit from lower non-core restructuring charges. Core
gross margin improved 70 basis points, including 50 basis points of
negative foreign exchange impacts. On a currency-neutral basis,
core gross margin increased 120 basis points, driven by 210 basis
points of productivity cost savings partially offset by headwinds
from unfavorable mix and commodity cost increases.
Selling, general and administrative expense (SG&A) as a
percent of sales increased 60 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 restructuring charges. Core
SG&A as a percentage of sales increased 70 basis points,
including 10 basis points of unfavorable foreign exchange impacts.
On a currency-neutral basis, core SG&A was up 60 basis points
versus the prior year as increased investments in marketing
activities were partially offset by productivity savings.
Reported operating profit margin increased 20 basis points. Core
operating profit margin was in-line with the prior year, including
60 basis points of foreign exchange impacts. On a currency-neutral
basis, core operating profit margin increased 60 basis points
driven by productivity cost savings of 230 basis points for the
quarter.
Fiscal Year 2017 Guidance
P&G said it is raising its guidance for organic sales growth
from approximately two percent to a range of two to three percent
for fiscal 2017. The Company now 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 in line with the prior fiscal
year.
The Company 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 fiscal
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 on October 1, 2016.
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 generate sufficient income and cash flow to allow
the Company to effect 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 sole supplier and
sole manufacturing plant arrangements) and 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
commodity prices, raw materials, labor costs, energy costs and
pension and health care costs; (6) the ability to stay on the
leading edge of innovation, obtain necessary intellectual property
protections and successfully respond to 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, contractors and external business partners;
(11) the ability to rely on and maintain key information technology
systems and networks (including Company and third-party systems and
networks) and maintain the security and functionality of such
systems and networks and the data contained therein; (12) the
ability to successfully manage regulatory and legal requirements
and matters (including, without limitation, those laws and
regulations involving product liability, intellectual property,
antitrust, privacy, tax, accounting standards and environmental)
and to resolve pending matters within current estimates; (13) the
ability to manage changes in applicable tax laws and regulations;
(14) the ability to successfully manage our portfolio optimization
strategy, including achieving and maintaining our intended tax
treatment of the related transactions, and 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; (15) the ability to successfully achieve productivity
improvements and cost savings and manage ongoing organizational
changes, while successfully identifying, developing and retaining
particularly key employees, especially in key growth markets where
the availability of skilled or experienced employees may be
limited; and (16) the ability to manage the uncertain implications
of the United Kingdom’s withdrawal from the European Union. 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.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per Share Amounts)
Consolidated Earnings Information
Three Months Ended December 31 Six Months
Ended December 31 2016 2015 %
Chg 2016 2015 % Chg
NET SALES $ 16,856 $ 16,915 — % $ 33,374 $ 33,442 — %
COST OF PRODUCTS SOLD 8,298 8,460 (2 )% 16,400
16,612 (1 )%
GROSS PROFIT 8,558 8,455 1 % 16,974
16,830 1 % SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 4,683
4,602 2 % 9,328 9,209 1 %
OPERATING
INCOME 3,875 3,853 1 % 7,646 7,621 — % INTEREST EXPENSE 122 143
(15 )% 253 283 (11 )% INTEREST INCOME 42 58 (28 )% 77 102 (25 )%
OTHER NON-OPERATING INCOME/(LOSS), NET (539 ) 35 N/A (476 )
17 N/A
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES 3,256 3,803 (14 )% 6,994 7,457 (6 )% INCOME TAXES ON
CONTINUING OPERATIONS 695 898 (23 )% 1,558
1,775 (12 )%
NET EARNINGS FROM CONTINUING OPERATIONS
2,561 2,905 (12 )% 5,436 5,682 (4 )%
NET EARNINGS FROM DISCONTINUED OPERATIONS 5,335 323
1,552 % 5,217 181 2,782 %
NET EARNINGS
7,896 3,228 145 % 10,653 5,863 82 %
LESS: NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTERESTS 21
22 (5 )% 64 56 14 %
NET EARNINGS
ATTRIBUTABLE TO PROCTER & GAMBLE $ 7,875 $ 3,206
146 % $ 10,589 $ 5,807 82 % EFFECTIVE
TAX RATE 21.3 % 23.6 % 22.3 % 23.8 %
BASIC NET EARNINGS
PER COMMON SHARE:* EARNINGS FROM CONTINUING OPERATIONS $ 0.96 $
1.04 (8 )% $ 1.99 $ 2.02 (1 )% EARNINGS/(LOSS) FROM DISCONTINUED
OPERATIONS $ 2.05 $ 0.12 1,608 % $ 1.98 $ 0.07
2,729 % BASIC NET EARNINGS PER COMMON SHARE $ 3.01 $
1.16 159 % $ 3.97 $ 2.09 90 %
DILUTED NET
EARNINGS PER COMMON SHARE:* EARNINGS FROM CONTINUING OPERATIONS
$ 0.93 $ 1.01 (8 )% $ 1.93 $ 1.97 (2 )% EARNINGS/(LOSS) FROM
DISCONTINUED OPERATIONS $ 1.95 $ 0.11 1,673 % $ 1.88
$ 0.06 3,033 % DILUTED NET EARNINGS PER COMMON SHARE
$ 2.88 $ 1.12 157 % $ 3.81 $ 2.03 88 %
DIVIDENDS PER COMMON SHARE $ 0.6695 $ 0.6629 $ 1.3390 $ 1.3258
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,737.6 2,864.6
2,780.2 2,865.8
COMPARISONS AS A % OF NET SALES
Basis Pt Chg Basis Pt Chg GROSS MARGIN 50.8%
50.0% 80 50.9% 50.3% 60 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
27.8% 27.2% 60 27.9% 27.5% 40 OPERATING MARGIN 23.0% 22.8% 20 22.9%
22.8% 10 EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
19.3% 22.5% (320) 21.0% 22.3% (130) NET EARNINGS FROM CONTINUING
OPERATIONS 15.2% 17.2% (200) 16.3% 17.0% (70) NET EARNINGS
ATTRIBUTABLE TO PROCTER & GAMBLE 46.7% 19.0% 2,770 31.7% 17.4%
1,430
* Basic net earnings per common share and Diluted net earnings
per common share are calculated on Net earnings attributable to
Procter & Gamble.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions)
Consolidated Earnings
Information
Three Months Ended December 31, 2016
% Change Earnings/(Loss) from %
Change Net Earnings/(Loss) % Change
Versus Year Continuing Operations Versus Year
from Continuing Versus Year Net Sales
Ago Before Income Taxes Ago
Operations Ago Beauty $ 2,942 (1 )% $
714 (8 )% $ 540 (8 )% Grooming 1,789 (1 )% 614 6 % 469 6 % Health
Care 2,072 5 % 608 8 % 422 7 % Fabric & Home Care 5,270 (1 )%
1,125 (4 )% 725 (6 )% Baby, Feminine & Family Care 4,645 (1 )%
1,038 — % 680 — % Corporate 138 24 % (843 ) N/A (275 ) N/A
Total Company $ 16,856 —
% $ 3,256 (14 )% $
2,561 (12 )% Three
Months Ended December 31, 2016 (Percent Change vs. Year
Ago)* Volume with Volume Excluding
Acquisitions &
Acquisitions & Foreign Net Sales
Divestitures Divestitures
Exchange Price Mix
Other** Growth Beauty (1)% 2% (2)% (1)% 2% 1%
(1)% Grooming 3% 4% (2)% 1% (4)% 1% (1)% Health Care 4% 4% (2)% 1%
2% —% 5% Fabric & Home Care 1% 2% (2)% (1)% —% 1% (1)% Baby,
Feminine & Family Care 2% 3% (2)% (1)%
(1)% 1% (1)%
Total Company 1%
2% (2)% —%
—% 1% —% Six
Months Ended December 31, 2016 % Change
Earnings/(Loss) from % Change Net
Earnings/(Loss) % Change Versus Year
Continuing Operations Versus Year from
Continuing Versus Year Net Sales
Ago Before Income Taxes Ago
Operations Ago Beauty $ 5,938 (1 )% $
1,497 (6 )% $ 1,132 (6 )% Grooming 3,447 (1 )% 1,143 6 % 884 6 %
Health Care 3,933 4 % 1,104 9 % 742 4 % Fabric & Home Care
10,572 — % 2,254 (2 )% 1,453 (4 )% Baby, Feminine & Family Care
9,240 (1 )% 2,083 (3 )% 1,377 (4 )% Corporate 244 12 %
(1,087 ) N/A (152 ) N/A
Total Company $ 33,374
— % $ 6,994 (6
)% $ 5,436 (4 )%
Six Months Ended December 31, 2016 (Percent Change
vs. Year Ago)* Volume with Volume
Excluding Acquisitions
& Acquisitions & Foreign Net Sales
Divestitures Divestitures
Exchange Price Mix
Other** Growth Beauty (2)% 2% (2)% —% 2% 1%
(1)% Grooming 2% 3% (2)% 1% (2)% —% (1)% Health Care 4% 5% (2)% 1%
1% —% 4% Fabric & Home Care 1% 3% (2)% (1)% 1% 1% —% Baby,
Feminine & Family Care 3% 3% (2)% (1)%
—% (1)% (1)%
Total Company 1%
2% (2)% —%
—% 1% —%
* Net sales percentage changes are approximations based on
quantitative formulas that are consistently applied.** Other
includes the sales mix impact from acquisitions/divestitures and
rounding impacts necessary to reconcile volume to net sales.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per Share
Amounts)
Consolidated Statements of Cash Flows Six
Months Ended December 31 2016 2015 CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 7,102 $ 6,836
OPERATING ACTIVITIES NET EARNINGS 10,653 5,863 DEPRECIATION
AND AMORTIZATION 1,435 1,454
LOSS ON EARLY EXTINGUISHMENT OF DEBT
543 — SHARE-BASED COMPENSATION EXPENSE 104 140 DEFERRED INCOME
TAXES (448 ) 140 GAIN ON SALE OF BUSINESSES (5,343 ) (37 ) GOODWILL
AND INTANGIBLE ASSET IMPAIRMENT CHARGES — 402 CHANGES IN: ACCOUNTS
RECEIVABLE (595 ) (488 ) INVENTORIES (247 ) (386 ) ACCOUNTS
PAYABLE, ACCRUED AND OTHER LIABILITIES (296 ) 322 OTHER OPERATING
ASSETS & LIABILITIES 152 374 OTHER 67 234
TOTAL OPERATING ACTIVITIES 6,025 8,018
INVESTING ACTIVITIES CAPITAL EXPENDITURES (1,429 ) (1,223 )
PROCEEDS FROM ASSET SALES 280 80 ACQUISITIONS, NET OF CASH ACQUIRED
(16 ) (186 ) PURCHASES OF SHORT-TERM INVESTMENTS (1,739 ) (762 )
PROCEEDS FROM SALES OF SHORT-TERM INVESTMENTS 354 683
PRE-DIVESTITURE ADDITION OF RESTRICTED
CASH RELATED TO THE BEAUTY BRANDS DIVESTITURE
(874 ) — CASH TRANSFERRED AT CLOSING TO THE DISCONTINUED BEAUTY
BUSINESS (475 ) — RELEASE OF RESTRICTED CASH UPON CLOSING OF THE
BEAUTY BRANDS DIVESTITURE 1,870 — CHANGE IN OTHER INVESTMENTS 8
(31 )
TOTAL INVESTING ACTIVITIES (2,021 ) (1,439 )
FINANCING ACTIVITIES DIVIDENDS TO SHAREHOLDERS (3,637 )
(3,733 ) CHANGE IN SHORT-TERM DEBT 2,715 2,020 ADDITIONS TO
LONG-TERM DEBT 2,641 1,721 REDUCTIONS OF LONG-TERM DEBT (5,029 )
(1) (2,239 ) TREASURY STOCK PURCHASES (2,503 ) (2,503 ) IMPACT OF
STOCK OPTIONS AND OTHER 1,074 1,007
TOTAL
FINANCING ACTIVITIES (4,739 ) (3,727 )
EFFECT OF EXCHANGE
RATE CHANGES ON CASH AND CASH EQUIVALENTS (316 ) (285 )
CHANGE IN CASH AND CASH EQUIVALENTS (1,051 ) 2,567
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,051 $
9,403
(1) Includes $543 of costs related to early extinguishment of
debt.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per Share
Amounts)
Condensed Consolidated Balance Sheets
December 31, 2016 June 30, 2016 CASH AND CASH
EQUIVALENTS $ 6,051 $ 7,102 AVAILABLE-FOR-SALE INVESTMENTS
SECURITIES 7,403 6,246 ACCOUNTS RECEIVABLE 4,729 4,373 INVENTORIES
4,787 4,716 DEFERRED INCOME TAXES — 1,507 PREPAID EXPENSES AND
OTHER CURRENT ASSETS 2,602 2,653 CURRENT ASSETS HELD FOR SALE —
7,185
TOTAL CURRENT ASSETS 25,572 33,782 PROPERTY,
PLANT AND EQUIPMENT, NET 18,778 19,385 GOODWILL 43,458 44,350
TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET 24,185 24,527 OTHER
NONCURRENT ASSETS 5,040 5,092
TOTAL ASSETS $ 117,033
$ 127,136 ACCOUNTS PAYABLE $ 8,300 $ 9,325 ACCRUED
AND OTHER LIABILITIES 7,584 7,449 CURRENT LIABILITIES HELD FOR SALE
— 2,343 DEBT DUE WITHIN ONE YEAR 13,007 11,653
TOTAL
CURRENT LIABILITIES 28,891 30,770 LONG-TERM DEBT 16,460 18,945
DEFERRED INCOME TAXES 8,692 9,113 OTHER NONCURRENT LIABILITIES
9,246 10,325
TOTAL LIABILITIES 63,289 69,153
TOTAL SHAREHOLDERS' EQUITY 53,744 57,983
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY $ 117,033 $ 127,136
The Procter & Gamble Company
Exhibit 1: Non-GAAP Measures
In accordance with the SEC's Regulation G, the following
provides definitions of the non-GAAP measures used in Procter &
Gamble's January 20, 2017 earnings release and the
reconciliation to the most closely related GAAP measure. We believe
that these measures provide useful perspective on underlying
business trends (i.e. trends excluding non-recurring or unusual
items) and results and provide a supplemental measure of
year-on-year results. The non-GAAP measures described below are
used by Management in making operating decisions, allocating
financial resources and for business strategy purposes. These
measures may be useful to investors as they provide supplemental
information about business performance and provide investors a view
of our business results through the eyes of management. These
measures are also used to evaluate senior management and are a
factor in determining their at-risk compensation. These non-GAAP
measures are not intended to be considered by the user in place of
the related GAAP measure, but rather as supplemental information to
our business results. These non-GAAP measures may not be the same
as similar measures used by other companies due to possible
differences in method and in the items or events being
adjusted.
The Core earnings measures included in the following
reconciliation tables refer to the equivalent GAAP measures
adjusted as applicable for the following items:
Incremental restructuring: The
Company has had and continues to have an ongoing level of
restructuring activities. Such activities have resulted in ongoing
annual restructuring related charges of approximately $250 - $500
million before tax. Beginning in 2012 Procter & Gamble began a
$10 billion strategic productivity and cost savings initiative that
includes incremental restructuring activities. This results in
incremental restructuring charges to accelerate productivity
efforts and cost savings. The adjustment to Core earnings includes
only the restructuring costs above what we believe are the normal
recurring level of restructuring costs.
Early debt extinguishment charges:
During the three months ended December 31, 2016, the Company
recorded a charge of $345 million after tax due to the early
extinguishment of certain long-term debt. This charge represents
the difference between the reacquisition price and the par value of
the debt extinguished. Management does not view this charge as
indicative of the Company’s operating performance or underlying
business results.
We do not view the above items to be part of our sustainable
results and their exclusion from Core earnings measures provides a
more comparable measure of year-on-year results. Both of these
items are also excluded when evaluating senior management in
determining their at-risk compensation.
Organic sales growth: Organic sales
growth is a non-GAAP measure of sales growth excluding the impacts
of acquisitions, divestitures and foreign exchange from
year-over-year comparisons. Management believes this measure
provides investors with a supplemental understanding of underlying
sales trends by providing sales growth on a consistent basis.
Core operating profit margin: Core
operating profit margin is a measure of the Company's operating
margin adjusted for items as indicated. Management believes this
non-GAAP measure provides a supplemental perspective to the
Company’s operating efficiency over time.
Core gross margin: Core gross
margin is a measure of the Company's gross margin adjusted for
items as indicated. Management believes this non-GAAP measure
provides a supplemental perspective to the Company’s operating
efficiency over time.
Core EPS and currency-neutral Core
EPS: Core earnings per share, or Core EPS, is a measure of
the Company's diluted net earnings per share from continuing
operations adjusted as indicated. Currency-neutral Core EPS is a
measure of the Company's Core EPS excluding the incremental current
year impact of foreign exchange. Management views these non-GAAP
measures as a useful supplemental measure of Company performance
over time.
Adjusted free cash flow: Adjusted
free cash flow is defined as operating cash flow less capital
spending and excluding tax payments related to the Beauty Brands
divestiture, which are non-recurring and not considered indicative
of underlying cash flow performance. Adjusted free cash flow
represents the cash that the Company is able to generate after
taking into account planned maintenance and asset expansion.
Management views adjusted free cash flow as an important measure
because it is one factor used in determining the amount of cash
available for dividends and discretionary investment.
Adjusted free cash flow
productivity: Adjusted free cash flow productivity is
defined as the ratio of adjusted free cash flow to net earnings
excluding the loss on early debt extinguishment and gain on the
sale of the Beauty Brands, which are non-recurring and not
considered indicative of underlying earnings performance.
Management views adjusted free cash flow productivity as a useful
measure to help investors understand P&G’s ability to generate
cash. Adjusted free cash flow productivity is used by management in
making operating decisions, allocating financial resources and for
budget planning purposes. The Company's long-term target is to
generate annual adjusted free cash flow productivity at or above 90
percent.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES (Amounts
in Millions Except Per Share Amounts) Reconciliation of Non-GAAP
Measures
Three Months Ended December 31, 2016
AS REPORTED DISCONTINUED
INCREMENTAL EARLY DEBT
NON-GAAP (GAAP) OPERATIONS
RESTRUCTURING EXTINGUISHMENT ROUNDING
(CORE) COST OF PRODUCTS SOLD 8,298 — (128 ) — — 8,170
GROSS PROFIT 8,558 — 128 — — 8,686
GROSS MARGIN 50.8
% — % 0.8 % — % (0.1 )% 51.5 %
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSE 4,683 — 36 — 1 4,720
SELLING, GENERAL
AND ADMINISTRATIVE EXPENSE AS A % OF NET SALES 27.8 % — % 0.2 %
— % — % 28.0 %
OPERATING INCOME 3,875 — 92 — (1 ) 3,966
OPERATING PROFIT MARGIN 23.0 % — % 0.5 % — % — % 23.5 %
INCOME TAX ON CONTINUING OPERATIONS 695 — 21 198 (1 ) 913
NET EARNINGS ATTRIBUTABLE TO P&G 7,875 (5,335 ) 71 345 —
2,956
EFFECTIVE TAX RATE 21.3 % — % — % 2.2 % — % 23.5 %
Core EPS: DILUTED NET EARNINGS PER COMMON
SHARE* 2.88 (1.95 ) 0.03
0.13 (0.01 ) 1.08 CURRENCY IMPACT TO
CORE EARNINGS 0.05 CURRENCY-NEUTRAL CORE EPS 1.13
* Diluted net earnings per share are calculated on Net earnings
attributable to Procter & Gamble.
CHANGE VERSUS YEAR AGO
CORE GROSS MARGIN 70 BPS CORE SELLING GENERAL &
ADMINISTRATIVE EXPENSE AS A % OF NET SALES 70 BPS CORE OPERATING
PROFIT MARGIN — BPS CORE EFFECTIVE TAX RATE (10 ) BPS CORE EPS 4 %
CURRENCY-NEUTRAL CORE EPS 9 % THE PROCTER & GAMBLE
COMPANY AND SUBSIDIARIES (Amounts in Millions Except Per Share
Amounts) Reconciliation of Non-GAAP Measures
Three Months
Ended December 31, 2015 AS REPORTED
DISCONTINUED INCREMENTAL
NON-GAAP (GAAP) OPERATIONS
RESTRUCTURING ROUNDING (CORE) COST OF
PRODUCTS SOLD 8,460 — (143 ) — 8,317
GROSS PROFIT 8,455
— 143 — 8,598
GROSS MARGIN 50.0 % — % 0.8 % — % 50.8 %
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE 4,602 — 14 —
4,616
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE AS A % OF NET
SALES 27.2 % — % 0.1 % — % 27.3 %
OPERATING INCOME 3,853
— 129 — 3,982
OPERATING PROFIT MARGIN 22.8 % — % 0.8 % (0.1
)% 23.5 %
INCOME TAX ON CONTINUING OPERATIONS 898 — 30 (1 )
927
NET EARNINGS ATTRIBUTABLE TO P&G 3,206 (323 ) 99 1
2,983
EFFECTIVE TAX RATE 23.6 % — % — % — % 23.6 %
Core EPS:
DILUTED NET EARNINGS PER COMMON SHARE* 1.12
(0.11 ) 0.03 — 1.04
* Diluted net earnings per share are calculated on Net earnings
attributable to Procter & Gamble.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES (Amounts
in Millions Except Per Share Amounts) Reconciliation of Non-GAAP
Measures
Six Months Ended December 31, 2016
AS REPORTED DISCONTINUED
INCREMENTAL EARLY DEBT
NON-GAAP (GAAP) OPERATIONS
RESTRUCTURING EXTINGUISHMENT ROUNDING
(CORE) COST OF PRODUCTS SOLD 16,400 — (239 ) — —
16,161
GROSS PROFIT 16,974 — 239 — — 17,213
GROSS
MARGIN 50.9 % — % 0.7 % — % — % 51.6 %
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSE 9,328 — 59 — — 9,387
SELLING, GENERAL
AND ADMINISTRATIVE EXPENSE AS A % OF NET SALES 27.9 % — % 0.2 %
— % — % 28.1 %
OPERATING INCOME 7,646 — 180 — — 7,826
OPERATING PROFIT MARGIN 22.9 % — % 0.5 % — % — % 23.4 %
INCOME TAX ON CONTINUING OPERATIONS 1,558 — 36 198 — 1,792
NET EARNINGS ATTRIBUTABLE TO P&G 10,589 (5,217 ) 144 345
— 5,861
EFFECTIVE TAX RATE 22.3 % — % (0.1 )% 1.0 % 0.1 %
23.2 %
Core EPS: DILUTED NET EARNINGS PER COMMON
SHARE* 3.81 (1.88 ) 0.05
0.12 0.01 2.11 CURRENCY IMPACT
TO CORE EARNINGS 0.12 CURRENCY-NEUTRAL CORE EPS 2.23
* Diluted net earnings per share are calculated on Net earnings
attributable to Procter & Gamble.
CHANGE VERSUS YEAR AGO
CORE GROSS MARGIN 60 BPS CORE SELLING GENERAL & ADMINISTRATIVE
EXPENSE AS A % OF NET SALES 50 BPS CORE OPERATING PROFIT MARGIN —
BPS CORE EFFECTIVE TAX RATE (60 ) BPS CORE EPS 4 % CURRENCY-NEUTRAL
CORE EPS 10 % THE PROCTER & GAMBLE COMPANY AND
SUBSIDIARIES (Amounts in Millions Except Per Share Amounts)
Reconciliation of Non-GAAP Measures
Six Months Ended
December 31, 2015 AS REPORTED
DISCONTINUED INCREMENTAL
NON-GAAP (GAAP) OPERATIONS
RESTRUCTURING ROUNDING (CORE) COST OF
PRODUCTS SOLD 16,612 — (215 ) — 16,397
GROSS PROFIT
16,830 — 215 — 17,045
GROSS MARGIN 50.3 % — % 0.6 % 0.1 %
51.0 %
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE 9,209 —
14 — 9,223
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE AS A % OF
NET SALES — % — % 0.1 % 27.6 %
OPERATING INCOME 7,621 —
201 — 7,822
OPERATING PROFIT MARGIN 22.8 % — % 0.6 % — %
23.4 %
INCOME TAX ON CONTINUING OPERATIONS 1,775 — 44 —
1,819
NET EARNINGS ATTRIBUTABLE TO P&G 5,807 (181 ) 157
— 5,783
EFFECTIVE TAX RATE 23.8 % — % (0.1 )% 0.1 % 23.8 %
Core
EPS: DILUTED NET EARNINGS PER COMMON SHARE* 2.03
(0.06 ) 0.05 — 2.02
* Diluted net earnings per share are calculated on Net earnings
attributable to Procter & Gamble.
Organic sales
growth:
Foreign
Exchange
Acquisition/Divestiture
Organic
Sales
October -
December 2016
Net Sales
Growth
Impact
Impact*
Growth
Beauty (1)% 2% 2% 3% Grooming (1)% 2% —% 1% Health Care 5% 2% —% 7%
Fabric & Home Care (1)% 2% —% 1% Baby, Feminine & Family
Care (1)% 2% —% 1%
Total P&G —% 2%
—% 2%
Combined Foreign
Exchange &
Organic
Sales
Total
P&G
Net Sales
Growth
Acquisition/Divestiture Impact*
Growth
FY 2017 (Estimate) Flat
Approximately 2% to 3% 2% to 3%
* Acquisition/Divestiture Impact includes the mix impacts of
acquisitions and divestitures and rounding impacts necessary to
reconcile net sales to organic sales.
Core EPS:
Diluted
EPS
Total
P&G
Growth
Impact of
Incremental Non-Core Items*
Core EPS
Growth
FY 2017 Up mid-single (Estimate) Up 48% to 50%
Approximately (44%) digits
* Includes change in discontinued operations (includes gain on
sale of Beauty Brands).
Adjusted free cash
flow (dollar amounts in millions):
Three Months Ended December 31, 2016
Cash Tax Payment
-
Adjusted Free
Cash
Operating Cash
Flow
Capital
Spending
Free Cash
Flow
Beauty
Sale
Flow
$3,000 $(745) $2,255 $129
$2,384
Adjusted free cash
flow productivity (dollar amounts in millions) :
Three Months Ended December 31, 2016
Adjusted
Free
Loss on Early
Debt
Gain on Sale
of
Adjusted
Net
Adjusted Free
Cash
Cash Flow Net Earnings Extinguishment
Beauty Brands Earnings Flow Productivity
$2,384 $7,896 $345
$(5,335) $2,906 82%
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170120005235/en/
P&G Media
Contacts:Damon Jones, 513-983-0190Jennifer Corso,
513-983-2570orP&G Investor Relations
Contact:John Chevalier, 513-983-9974
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