P&G Delivers Second Quarter Core EPS Growth +12%, $1.22 Per Share; Raises Sales and Earnings Outlook

P&G Delivers Second Quarter Core EPS Growth +12%, $1.22 Per Share; Raises Sales and Earnings Outlook for Fiscal Year

CINCINNATI--(BUSINESS WIRE)-- The Procter & Gamble Company (NYS: PG) increased core earnings per share by 12 percent to $1.22 for the October - December quarter. Diluted net earnings per share were $1.39, an increase of 144 percent. Non-core items include restructuring charges of $0.05 per share and a $0.21 per share holding gain resulting from P&G's purchase of the balance of P&G's Baby Care and Feminine Care joint venture in Iberia, which was completed on October 22, 2012.

Organic sales grew three percent. Net sales were $22.2 billion, an increase of two percent versus the prior year period including a negative one percent impact from foreign exchange. The Company delivered broad-based organic sales growth, with all business segments increasing organic sales by two percent or more versus the prior year.

P&G held or grew market share in businesses representing nearly 50 percent of sales in the October - December quarter, as measured on a constant currency value basis. In the U.S. market, P&G held or grew value share in businesses representing nearly 60 percent of sales.

"Our second quarter results were at the high end of our expectations on the top-line and well ahead of forecast on operating profit, earnings per share and cash flow," said Chairman, President, and Chief Executive Officer, Bob McDonald. "Global market share trends improved as we continued to implement our growth strategy and made very good progress against our productivity and cost savings goals. Our strong first half results have enabled us to raise our sales, earnings and share repurchase outlook for the fiscal year, while we strengthen investments in our innovation and marketing programs."

Executive Summary

  • Organic sales increased three percent for the quarter, at the top end of the guidance range.
  • Organic sales growth was broad-based, with all business segments increasing by two percent or more versus the prior year.
  • Core net earnings per share increased by 12 percent to $1.22.
  • Core gross margin increased 110 basis points due to the impact of higher pricing and manufacturing cost savings, partially offset by unfavorable geographic and product mix. Reported gross margin, including non-core restructuring charges, increased 80 basis points.
  • Core and reported selling, general and administrative expenses (SG&A) as a percentage of net sales was unchanged, as enrollment reductions and productivity savings were offset by higher pension and employee benefit costs. Non-core charges in SG&A were in line with the prior year level.
  • Core operating profit increased seven percent. Reported operating profit, including non-core charges, increased 68 percent.
  • Operating cash flow was $3.8 billion for the quarter. The Company repurchased $1.4 billion of shares during the quarter and returned $1.6 billion of cash to shareholders as dividends.

Fiscal Year 2013 Guidance

P&G increased its core earnings per share guidance for the year to $3.97 to $4.07, up three percent to up six percent versus prior year core EPS of $3.85, behind strong productivity improvement and resulting cost savings. P&G also raised its all-in GAAP earnings per share guidance to a range of $4.04 to $4.14, equating to growth of 10 percent to 13 percent versus prior year GAAP EPS of $3.66. The increase reflects higher core earnings and an increase in the non-core holding gain resulting from P&G's purchase of the balance of our Baby Care and Feminine Care joint venture in Iberia. The all-in EPS range also includes non-core restructuring charges of $0.15.

The Company is increasing its organic sales growth guidance to a range of three percent to four percent for the fiscal year from a previous range of two percent to four percent. Foreign exchange is expected to reduce sales growth by two percent, resulting in guidance for all-in net sales growth of up one percent to two percent versus the prior year.

The Company also increased its outlook for share repurchase to $5 to $6 billion, up from a prior range of $4 to $6 billion.

January - March 2013 Quarter Guidance

P&G is estimating net and organic sales growth in the range of three percent to four percent for the January - March quarter. Foreign exchange is expected to be neutral to sales growth.

The Company expects March quarter core EPS in the range of $0.91 to $0.97, down three percent to up three percent compared to prior year core EPS of $0.94. On an all-in basis, P&G is forecasting earnings per share in the range of $0.90 to $0.96, an increase of 10 percent to 17 percent versus prior year diluted EPS of $0.82. Prior year all-in results included $0.13 of non-core costs, primarily related to restructuring charges. Current year all-in EPS guidance includes non-core restructuring charges of $0.01 per share.

Business Segment Discussion

Beauty Segment

 Foreign    Net        Organic Organic        BT AT
0% -1% 3% 0% -1% 1%        0% 3%        12% 9%

The majority of the businesses in the Beauty Segment increased net sales versus the prior year driven by innovation and higher pricing. Net sales decreased in skin care due to competitive activity. Net sales decreased in Salon Professional due to the negative impact from foreign exchange and market softness. Increased net earnings were driven by higher pricing and productivity savings in cost of goods and overheads.

Grooming Segment

 Foreign    Net        Organic Organic        BT AT
-2% -3% 2% 0% -1% -4%        0% 2%        0% 0%

Blades and razors net sales increased versus the prior year due to higher pricing and growth in the U.S. driven by strengthened marketing and in-store plans and were partially offset by the negative impact from foreign exchange. Organic sales in Appliances increased behind favorable product mix and price increases. All-in sales for the segment decreased due to the divestiture of the household appliances business and negative foreign exchange. Net earnings were in-line with prior year as higher pricing and productivity savings were offset by the decrease in net sales and higher commodity costs.

Health Care Segment

 Foreign    Net        Organic Organic        BT AT
3% -2% 2% -1% 1% 3%        3% 4%        -7% -5%

Oral Care net sales grew behind new innovation, market expansion and higher pricing, partially offset by negative foreign exchange. Feminine Care net sales increased behind volume from initiatives on Always in Latin America and Whisper in Asia. Net sales in Personal Health Care grew due to price increases and positive mix. The decline in net earnings is primarily due to higher marketing spending and supply chain investments.

Fabric Care and Home Care Segment

 Foreign    Net        Organic Organic        BT AT
2% 0% 1% 0% 0% 3%        2% 3%        15% 21%

Fabric Care net sales growth was driven by new product launches, positive pricing, and product mix. Home Care delivered higher net sales primarily due to volume growth from innovation and geographic expansion. Batteries net sales were up driven by price increases and pantry loading from Hurricane Sandy, partially offset by lower unit volume in Western Europe due to market contraction. Higher earnings were due to the increase in net sales and cost savings that were partially offset by increased commodity costs and higher marketing spending.

Baby Care and Family Care Segment

 Foreign    Net        Organic Organic        BT AT
6% -1% 2% -3% 0% 4%        6% 5%        16% 18%

Baby Care net sales were up driven by market growth, innovation, and higher pricing. Family Care net sales increased behind Charmin and Bounty innovation. Earnings growth was driven by the increase in net sales, cost savings and favorable commodity cost comparisons versus the prior year.

(Amounts in Millions Except Per Share Amounts)
Selected Financial Information
Three Months Ended December 31Three Months Ended December 31
20122011% Change20122011% Change
COST OF PRODUCTS SOLD10,88010,8510%10,82610,8410%
GROSS PROFIT11,29510,8934%11,34910,9034%
OPERATING INCOME4,4922,68068%4,6474,3287%
Basis PtBasis Pt


GROSS MARGIN50.9 %50.1 %8051.2 %50.1 %110
OPERATING MARGIN20.3 %12.3 %80021.0 %19.9 %110


FREE CASH FLOW5,0903,715










*Core excludes incremental restructuring charges, gain on buyout of Iberian JV, European legal matters, and impairment charges.

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," "anticipate," "estimate," "intend," "strategy," "future," "opportunity," "plan," "may," "should," "will," "would," "will be," "will continue", "will likely results," and similar expressions. Forward-looking statements are based on current expectation and assumptions that are subject to risks and uncertainties which may cause results to differ materially from 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: (1) the ability to achieve business plans, including growing existing sales and volume profitably and maintaining and improving margins and market share, despite high levels of competitive activity, an increasingly volatile economic environment, lower than expected market growth rates, especially with respect to the product categories and geographical markets (including developing markets) in which the Company has chosen to focus, and/or increasing competition from mid- and lower tier value products in both developed and developing markets; (2) the ability to successfully manage ongoing acquisition, divestiture and joint venture activities to achieve the cost and growth synergies in accordance with the stated goals of these transactions without impacting the delivery of base business objectives; (3) the ability to successfully manage ongoing organizational changes and achieve productivity improvements designed to support our growth strategies, while successfully identifying, developing and retaining particularly key employees, especially in key growth markets where the availability of skilled employees is limited; (4) the ability to manage and maintain key customer relationships; (5) the ability to maintain key manufacturing and supply sources (including sole supplier and plant manufacturing sources); (6) the ability to successfully manage regulatory, tax and legal requirements and matters (including product liability, patent, intellectual property, price controls, import restrictions, environmental and tax policy), and to resolve pending matters within current estimates; (7) the ability to resolve the pending competition law inquiries in Europe within current estimates; (8) the ability to successfully implement, achieve and sustain cost improvement plans and efficiencies in manufacturing and overhead areas, including the Company's outsourcing projects; (9) the ability to successfully manage volatility in foreign exchange rates, as well as our debt and currency exposure (especially in certain countries with currency exchange controls, such as Venezuela, China, India and Argentina); (10) the ability to maintain our current credit rating and to manage fluctuations in interest rate, increases in pension and healthcare expense, and any significant credit or liquidity issues; (11) the ability to manage continued global political and/or economic uncertainty and disruptions, especially in the Company's significant geographical markets, due to a wide variety of factors, including but not limited to, terrorist and other hostile activities, natural disasters and/or disruptions to credit markets, resulting from a global, regional or national credit crisis; (12) the ability to successfully manage competitive factors, including prices, promotional incentives and trade terms for products; (13) the ability to obtain patents and respond to technological advances attained by competitors and patents granted to compet

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