Q4’19 GAAP:
Net Sales +4%; Diluted Net Loss per Share
$2.12, -394%
Q4’19 CORE:
Organic Sales +7%; Core EPS $1.10, +17%;
Currency-Neutral Core EPS +26%
FY ’19
GAAP: Net Sales +1%; Diluted Net
EPS $1.43, -61%
FY ’19
CORE: Organic Sales +5%; Core EPS
$4.52, +7%; Currency-Neutral Core EPS +15%
The Procter & Gamble Company (NYSE:PG) reported fourth
quarter fiscal year 2019 net sales of $17.1 billion, an increase of
four percent versus the prior year. Excluding the impacts of
foreign exchange, acquisitions and divestitures, organic sales
increased seven percent, driven by a three percent increase in
organic volume. Diluted net loss per share was $2.12, down $2.84
versus the prior year due primarily to one-time, non-cash
accounting adjustments to the carrying values of the Gillette Shave
Care business. Core earnings per share increased 17% to $1.10
driven by strong organic sales growth and core operating margin
expansion. Currency-neutral core EPS increased 26% versus the prior
year. The Company generated $4.2 billion of operating cash flow in
the quarter, with adjusted free cash flow productivity of 122%.
For fiscal year 2019, the Company reported net sales of $67.7
billion, an increase of one percent versus the prior year.
Excluding the impacts of foreign exchange, acquisitions and
divestitures, organic sales increased five percent, driven by a two
percent increase in organic volume. Diluted net earnings per share
were $1.43, a decrease of 61% versus the prior year due primarily
to the accounting adjustments to carrying values of the Gillette
Shave Care business. Core earnings per share increased seven
percent to $4.52. Currency-neutral core EPS increased 15%. The
Company generated $15.2 billion of operating cash flow in fiscal
2019 with adjusted free cash flow productivity of 105%. P&G
returned $12.5 billion of value to shareholders in fiscal 2019
through $7.5 billion of dividend payments and $5.0 billion of
direct share repurchases.
“We met or exceeded each of our going-in core targets for sales,
profit and cash in fiscal 2019,” said David Taylor, Chairman,
President and Chief Executive Officer. “We built sales, market
share and profit margin momentum throughout the year, ending with
our strongest quarter of organic sales growth in well over a
decade. Looking ahead, we will continue to focus on superiority,
productivity, constructive disruption and improving P&G’s
organization and culture to deliver sustainable, balanced top-line
and bottom-line growth along with strong cash generation in a
challenging competitive and macroeconomic environment.”
April - June 2019 Quarter Discussion
Net sales in the fourth quarter of fiscal year 2019 were $17.1
billion, up four percent versus the prior year. Unfavorable foreign
exchange was a four percent hurt to sales for the quarter.
Excluding the impacts of foreign exchange, acquisitions and
divestitures, organic sales increased seven percent driven by a
three percent increase in organic shipment volume. Increased
pricing added three percentage points to organic sales. Positive
mix impact was a two percent help to organic sales due to strong
growth in developed markets and disproportionate organic growth of
the premium SK-II brand and the Personal Health Care category.
April - June
2019
Net Sales Drivers
(1)
Volume
Foreign
Exchange
Price
Mix
Other (2)
Net
Sales
Organic
Volume
Organic
Sales
Beauty
2%
(5)%
2%
5%
(1)%
3%
1%
8%
Grooming
(1)%
(6)%
3%
1%
—%
(3)%
(1)%
4%
Health Care
8%
(4)%
3%
4%
2%
13%
3%
10%
Fabric & Home Care
5%
(4)%
4%
1%
(1)%
5%
5%
10%
Baby, Feminine & Family Care
1%
(4)%
3%
1%
—%
1%
1%
5%
Total P&G
3%
(4)%
3%
2%
—%
4%
3%
7%
(1)
Net sales percentage changes are
approximations based on quantitative formulas that are consistently
applied.
(2)
Other includes the sales mix
impact from acquisitions and divestitures, the impact from the July
1, 2018 adoption of new accounting standards for "Revenue from
Contracts with Customers" and rounding impacts necessary to
reconcile volume to net sales
- Beauty segment organic sales increased eight percent versus
year ago. Skin and Personal Care organic sales increased mid-teens
driven by market growth, innovation, positive product mix from the
disproportionate growth of the super-premium SK-II brand and Olay
Skin Care and increased pricing. Hair Care organic sales increased
low single digits due to innovation and devaluation-driven price
increases.
- Grooming segment organic sales increased four percent. Shave
Care organic sales increased low single digits as positive
geographic mix help from the growth of developed regions and the
benefit of devaluation-driven price increases were partially offset
by related unit volume declines and market contraction in certain
regions. Appliances organic sales increased double digits due to
premium innovation, positive mix help from the disproportionate
growth of developed regions and increased pricing.
- Health Care segment organic sales increased ten percent. Oral
Care organic sales increased high single digits driven by premium
innovation, positive mix from the disproportionate growth of
developed regions and premium power brush and paste products and
increased pricing. Personal Health Care organic sales increased
mid-teens due to innovation, a late season increase in cough and
cold incidents and favorable mix due to the disproportionate growth
of developed regions and respiratory products which have higher
than category-average selling prices.
- Fabric and Home Care segment organic sales increased ten
percent. Fabric Care organic sales increased double digits driven
by innovation, market growth, devaluation-related pricing and
positive mix due to the disproportionate growth of premium
products. Home Care organic sales increased double digits driven by
innovation and devaluation-related price increases.
- Baby, Feminine and Family Care segment organic sales increased
five percent. Baby Care organic sales increased low single digits
due to devaluation-related price increases and positive mix from
the disproportionate growth of premium products, partially offset
by reduced volumes due to increased pricing, competitive activity
and category contraction in certain markets. Feminine Care organic
sales increased high single digits driven by innovation, favorable
mix due to the disproportionate growth of premium products and
devaluation-related price increases. Family Care organic sales
increased mid-single digits due to innovation and increased
pricing, partially offset by negative mix impact from the
disproportionate growth of the club channel.
Diluted net loss per share was $2.12, significantly below prior
year due to the one-time, non-cash charge to adjust the carrying
value of Gillette Shave Care goodwill and trade name intangible
assets. This impact was partially offset by the charges for early
debt extinguishment in the base period. Core earnings per share
were $1.10, a 17% increase versus the prior year, driven primarily
by the increase in net sales, increased core operating margins and
a lower effective tax rate. Currency-neutral core earnings per
share increased 26% for the quarter.
Reported gross margin increased 270 basis points, including 150
basis points of lower non-core restructuring charges versus the
prior year. Core gross margin increased 120 basis points, including
40 basis points of negative foreign exchange impacts. On a
currency-neutral basis, core gross margin increased 160 basis
points. 200 basis points of productivity savings and 160 basis
points of pricing benefit were partially offset by 60 basis points
of commodity cost increases, 20 basis points of innovation
reinvestments and 120 basis points of unfavorable product mix and
other impacts.
Reported selling, general and administrative expense (SG&A)
as a percentage of sales decreased 10 basis points versus the prior
year. Core SG&A as a percentage of sales decreased
approximately 20 basis points versus the prior year, including
approximately 30 basis points of negative foreign exchange impacts.
On a currency-neutral basis, core SG&A as a percentage of sales
decreased approximately 50 basis points. 190 basis points of sales
leverage benefit, 140 basis points of savings from marketing
expenses and overheads and 100 basis points of gain from the sale
of real estate in Boston were partially offset by 170 basis points
of marketing reinvestments, 180 basis points from capability
investments primarily in sales and research and development, higher
compensation costs driven by above-target results and general
salary inflation, and 30 basis points from costs related to the
Merck OTC business and other impacts.
Reported operating profit margin was negative 30.4% in the
period due to the current period charges for the Gillette Shave
Care carrying value adjustments. Excluding this adjustment and 150
basis points of help from lower non-core restructuring charges,
core operating margin increased 130 basis points to 19.6%,
including approximately 80 basis points of negative foreign
exchange impacts. On a currency-neutral basis, core operating
margin increased 210 basis points including total productivity cost
savings of 340 basis points for the quarter.
Fiscal Year 2019 Results
Fiscal year 2019 net sales were $67.7 billion, an increase of
one percent versus the prior year. Excluding the impact of foreign
exchange, acquisitions and divestitures, organic sales increased
five percent on a two percent increase in organic volume. Diluted
net earnings per share were $1.43, a decrease of 61% versus the
prior year, primarily due to the charges to reduce the Gillette
Shave Care carrying value in fiscal 2019. This impact was partially
offset by early debt extinguishment and U.S. tax reform charges in
the base period. Core earnings per share were $4.52, an increase of
seven percent driven by the increase in net sales and lower
effective tax rates. Excluding the impact of foreign currency,
currency-neutral core earnings per share increased 15%.
Goodwill and Intangibles Impairment
During the April-June 2019 quarter, the Company took a non-cash,
after-tax charge of $8 billion to adjust U.S. Dollar carrying
values of goodwill and trade name intangible assets in the Gillette
Shave Care business. The charge is a non-core EPS adjustment of
$3.02 in the quarter and $3.03 in fiscal year 2019. (Refer to
Exhibit 1: Non-GAAP Measures for the full reconciliation of GAAP to
Core EPS results for the quarter and fiscal year.) The impairment
was due primarily to significant currency devaluations that have
occurred since carrying values were initially established nearly 14
years ago in 2005. The Shave Care business has also been negatively
impacted by market contraction of blades and razors, primarily in
developed markets, due to lower shaving frequency, and competitive
activities. P&G said the Shave Care business has consistently
generated significant earnings and cash flow and continues to be a
strategic business with attractive earnings, cash flow and growth
opportunities.
Fiscal Year 2020 Guidance
The Company said it expects fiscal year 2020 all-in sales growth
in the range of three to four percent versus the prior fiscal year.
The estimate includes a modest negative impact from foreign
exchange, which is largely offset by a positive net impact from
acquisitions and divestitures. P&G expects organic sales growth
in the range of three to four percent.
The Company is guiding to a GAAP diluted net earnings per share
growth in the range of 222% to 240%, noting that the comparison
period is significantly depressed by the Gillette Shave Care
carrying value adjustment discussed above. Core earnings per share
are expected to increase four to nine percent (mid-to-high single
digits) versus fiscal 2019 Core EPS of $4.52. P&G said its
current outlook for commodities, foreign exchange, transportation
and tariffs is expected to provide a modest net benefit to earnings
growth in fiscal year 2020.
The Company is not able to reconcile its forward-looking
non-GAAP effective tax rate and non-GAAP cash flow productivity
measures without unreasonable efforts because the Company cannot
predict the timing and amounts of discrete items, such as
acquisitions, divestitures, or impairments, which could
significantly impact GAAP results.
P&G said its core effective tax rate in fiscal 2020 should
be in the range of 17% to 18%.
P&G expects adjusted free cash flow productivity of 90% for
the fiscal year.
Capital spending is estimated to be in the range of 4.5% to 5%
of net sales.
P&G estimates it will pay more than $7.5 billion in
dividends and repurchase $6 billion to $8 billion of common shares
in fiscal 2020.
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 to generate sufficient income and cash flow to
allow the Company to affect 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
execution of supply chain optimizations and sole supplier and sole
manufacturing plant arrangements) and to 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
prices of commodities and raw materials, and costs of labor,
transportation, energy, pension and healthcare; (6) the ability to
stay on the leading edge of innovation, obtain necessary
intellectual property protections and successfully respond to
changing consumer habits and 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, contract
manufacturers, distributors, contractors and external business
partners; (11) the ability to rely on and maintain key company and
third party information technology systems, networks and services,
and maintain the security and functionality of such systems,
networks and services and the data contained therein; (12) the
ability to successfully manage uncertainties related to changing
political conditions (including the United Kingdom’s decision to
leave the European Union) and potential implications such as
exchange rate fluctuations and market contraction; (13) the ability
to successfully manage regulatory and legal requirements and
matters (including, without limitation, those laws and regulations
involving product liability, product and packaging composition,
intellectual property, antitrust, data protection, tax,
environmental, and accounting and financial reporting) and to
resolve pending matters within current estimates; (14) the ability
to manage changes in applicable tax laws and regulations including
maintaining our intended tax treatment of divestiture transactions;
(15) the ability to successfully manage 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; and
(16) the ability to successfully achieve productivity improvements
and cost savings and manage ongoing organizational changes, while
successfully identifying, developing and retaining key employees,
including in key growth markets where the availability of skilled
or experienced employees may be limited. 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 June
30
Twelve Months Ended June
30
2019
2018
% Chg
2019
2018
% Chg
NET SALES
$
17,094
$
16,503
4%
$
67,684
$
66,832
1%
Cost of products sold
8,938
9,070
(1)%
34,768
34,432
1%
GROSS PROFIT
8,156
7,433
10%
32,916
32,400
2%
Selling, general and administrative
expense
5,003
4,846
3%
19,084
19,037
—%
Goodwill and indefinite-lived intangibles
impairment charges
8,345
—
8,345
—
OPERATING INCOME/(LOSS)
(5,192
)
2,587
(301)%
5,487
13,363
(59)%
Interest expense
111
136
(18)%
509
506
1%
Interest income
52
63
(17)%
220
247
(11)%
Other non-operating income/(expense),
net
186
(225
)
(183)%
871
222
292%
EARNINGS/(LOSS) BEFORE INCOME
TAXES
(5,065
)
2,289
(321)%
6,069
13,326
(54)%
Income taxes
172
399
(57)%
2,103
3,465
(39)%
NET EARNINGS/(LOSS)
(5,237
)
1,890
(377)%
3,966
9,861
(60)%
Less: Net earnings/(loss) attributable to
noncontrolling interests
4
(1
)
N/A
69
111
(38)%
NET EARNINGS/(LOSS) ATTRIBUTABLE TO
PROCTER & GAMBLE
$
(5,241
)
$
1,891
(377)%
$
3,897
$
9,750
(60)%
EFFECTIVE TAX RATE
(3.4
)%
17.4
%
34.7
%
26.0
%
NET EARNINGS PER COMMON SHARE:
(1)
Basic
$
(2.12
)
$
0.73
(390)%
$
1.45
$
3.75
(61)%
Diluted
$
(2.12
)
$
0.72
(394)%
$
1.43
$
3.67
(61)%
DIVIDENDS PER COMMON SHARE
$
0.7459
$
0.7172
4%
$
2.8975
$
2.7860
4%
Diluted Weighted Average Common Shares
Outstanding
2,509.6
2,620.9
2,539.5
2,656.7
COMPARISONS AS A % OF NET SALES
Basis Pt Change
Basis Pt Change
Gross margin
47.7%
45.0%
270
48.6%
48.5%
10
Selling, general and administrative
expense
29.3%
29.4%
(10)
28.2%
28.5%
(30)
Operating margin
(30.4)%
15.7%
(4,610)
8.1%
20.0%
(1,190)
Earnings/(loss) from continuing operations
before income taxes
(29.6)%
13.9%
(4,350)
9.0%
19.9%
(1,090)
Net earnings/(loss) from continuing
operations
(30.6)%
11.5%
(4,210)
5.9%
14.8%
(890)
Net earnings/(loss) attributable to
Procter & Gamble
(30.7)%
11.5%
(4,220)
5.8%
14.6%
(880)
(1)
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
Except Per Share Amounts)
Consolidated Earnings
Information
Three Months Ended June 30,
2019
Net Sales
% Change
Versus Year
Ago
Earnings/(Loss) from
Continuing Operations
Before Income Taxes
% Change
Versus Year
Ago
Net Earnings/(Loss)
from Continuing
Operations
% Change
Versus Year
Ago
Beauty
$3,190
3%
$696
(2)%
$555
2%
Grooming
1,596
(3)%
583
34%
467
35%
Health Care
2,038
13%
413
24%
309
42%
Fabric & Home Care
5,653
5%
1,209
33%
934
58%
Baby, Feminine & Family Care
4,501
1%
900
16%
682
41%
Corporate
116
(3)%
(8,866)
N/A
(8,184)
N/A
Total Company
$17,094
4%
$(5,065)
(321)%
$(5,237)
(377)%
Three Months Ended June 30,
2019
(Percent Change vs. Year Ago)
(1)
Volume with
Acquisitions &
Divestitures
Volume Excluding
Acquisitions &
Divestitures
Foreign
Exchange
Price
Mix
Other (2)
Net Sales
Growth
Beauty
2%
1%
(5)%
2%
5%
(1)%
3%
Grooming
(1)%
(1)%
(6)%
3%
1%
—%
(3)%
Health Care
8%
3%
(4)%
3%
4%
2%
13%
Fabric & Home Care
5%
5%
(4)%
4%
1%
(1)%
5%
Baby, Feminine & Family Care
1%
1%
(4)%
3%
1%
—%
1%
Total Company
3%
3%
(4)%
3%
2%
—%
4%
Twelve Months Ended June 30,
2019
Net Sales
% Change
Versus Year
Ago
Earnings/(Loss) from
Continuing Operations
Before Income Taxes
% Change
Versus Year
Ago
Net Earnings/(Loss)
from Continuing
Operations
% Change
Versus Year
Ago
Beauty
$12,897
4%
$3,282
8%
$2,637
14%
Grooming
6,199
(5)%
1,777
(1)%
1,529
7%
Health Care
8,218
5%
1,984
3%
1,519
18%
Fabric & Home Care
22,080
3%
4,601
10%
3,518
30%
Baby, Feminine & Family Care
17,806
(2)%
3,593
2%
2,734
21%
Corporate
484
(3)%
(9,168)
N/A
(7,971)
N/A
Total Company
$67,684
1%
$6,069
(54)%
$3,966
(60)%
Twelve Months Ended June 30,
2019
(Percent Change vs. Year Ago)
(1)
Volume with
Acquisitions &
Divestitures
Volume Excluding
Acquisitions &
Divestitures
Foreign
Exchange
Price
Mix
Other (2)
Net Sales
Growth
Beauty
3%
2%
(4)%
2%
4%
(1)%
4%
Grooming
(1)%
(1)%
(5)%
2%
—%
(1)%
(5)%
Health Care
5%
4%
(3)%
1%
2%
—%
5%
Fabric & Home Care
4%
5%
(3)%
1%
1%
—%
3%
Baby, Feminine & Family Care
1%
1%
(4)%
1%
—%
—%
(2)%
Total Company
3%
2%
(4)%
2%
1%
(1)%
1%
(1)
Net sales percentage changes are
approximations based on quantitative formulas that are consistently
applied.
(2)
Other includes the sales mix
impact from acquisitions and divestitures, the impact from the
adoption of the new accounting standard for "Revenue from Contracts
with Customers" in fiscal 2019 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
Twelve Months Ended June
30
2019
2018
CASH, CASH EQUIVALENTS AND RESTRICTED
CASH, BEGINNING OF YEAR
$
2,569
$
5,569
OPERATING ACTIVITIES
Net earnings
3,966
9,861
Depreciation and amortization
2,824
2,834
Loss on early extinguishment of debt
—
346
Share-based compensation expense
515
395
Deferred income taxes
(411
)
(1,844
)
Gain on sale of assets
(678
)
(176
)
Goodwill and indefinite-lived intangible
impairment charges
8,345
—
Change in accounts receivable
(276
)
(177
)
Change in inventories
(239
)
(188
)
Change in accounts payable, accrued and
other liabilities
1,856
1,385
Change in other operating assets and
liabilities
(973
)
2,000
Other
313
431
TOTAL OPERATING ACTIVITIES
15,242
14,867
INVESTING ACTIVITIES
Capital expenditures
(3,347
)
(3,717
)
Proceeds from asset sales
394
269
Acquisitions, net of cash acquired
(3,945
)
(109
)
Purchases of short-term investments
(158
)
(3,909
)
Proceeds from sales and maturities of
short-term investments
3,628
3,928
Change in other investments
(62
)
27
TOTAL INVESTING ACTIVITIES
(3,490
)
(3,511
)
FINANCING ACTIVITIES
Dividends to shareholders
(7,498
)
(7,310
)
Change in short-term debt
(2,215
)
(3,437
)
Additions to long-term debt
2,367
5,072
Reductions of long-term debt (1)
(969
)
(2,873
)
Treasury stock purchases
(5,003
)
(7,004
)
Impact of stock options and other
3,324
1,177
TOTAL FINANCING ACTIVITIES
(9,994
)
(14,375
)
EFFECT OF EXCHANGE RATE CHANGES ON
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(88
)
19
CHANGE IN CASH, CASH EQUIVALENTS AND
RESTRICTED CASH
1,670
(3,000
)
CASH, CASH EQUIVALENTS AND RESTRICTED
CASH, END OF YEAR
$
4,239
$
2,569
(1)
Includes costs related to early
extinguishment of debt of $346 in 2018.
THE PROCTER & GAMBLE
COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per
Share Amounts)
Condensed Consolidated Balance
Sheets
June 30, 2019
June 30, 2018
Cash and cash equivalents
$
4,239
$
2,569
Available-for-sale investment
securities
6,048
9,281
Accounts receivable
4,951
4,686
Inventories
5,017
4,738
Prepaid expenses and other current
assets
2,218
2,046
TOTAL CURRENT ASSETS
22,473
23,320
PROPERTY, PLANT AND EQUIPMENT,
NET
21,271
20,600
GOODWILL
40,273
45,175
TRADEMARKS AND OTHER INTANGIBLE ASSETS,
NET
24,215
23,902
OTHER NONCURRENT ASSETS
6,863
5,313
TOTAL ASSETS
$
115,095
$
118,310
Accounts payable
$
11,260
$
10,344
Accrued and other liabilities
9,054
7,470
Debt due within one year
9,697
10,423
TOTAL CURRENT LIABILITIES
30,011
28,237
LONG-TERM DEBT
20,395
20,863
DEFERRED INCOME TAXES
6,899
6,163
OTHER NONCURRENT LIABILITIES
10,211
10,164
TOTAL LIABILITIES
67,516
65,427
TOTAL SHAREHOLDERS' EQUITY
47,579
52,883
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY
$
115,095
$
118,310
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 July 30, 2019 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. In 2012, the Company began a $10 billion
strategic productivity and cost savings initiative that includes
incremental restructuring activities. In 2017, we communicated
details of an additional multi-year productivity and cost savings
plan. 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.
Gain on Dissolution of the PGT Healthcare
Partnership: The Company dissolved our PGT Healthcare
partnership, a venture between the Company and Teva Pharmaceuticals
Industries, Ltd (Teva) in the OTC consumer healthcare business,
during the year ended June 30, 2019. The transaction was accounted
for as a sale of the Teva portion of the PGT business; the Company
recognized an after-tax gain on the dissolution of $353
million.
Transitional impacts of the U.S. Tax
Act: As discussed in Note 5 to the Consolidated Financial
Statements for the year ended June 30, 2018, the U.S. government
enacted comprehensive tax legislation commonly referred to as the
Tax Cuts and Jobs Act (the "U.S. Tax Act") in December 2017. This
resulted in a net charge of $602 million for the fiscal year 2018.
The adjustment to core earnings only includes this transitional
impact. It does not include the ongoing impacts of the lower U.S.
statutory rate on pre-tax earnings.
Early debt extinguishment charges:
In fiscal 2018, the Company recorded after-tax charges of $243
million, due to the early extinguishment of certain long-term debt.
These charges represent the difference between the reacquisition
price and the par value of the debt extinguished.
Shave Care Impairment: In the
fourth quarter of fiscal 2019, the Company recognized a one-time,
non-cash, after-tax charge of $8.0 billion ($8.3 billion before
tax) to adjust the carrying values of the Shave Care reporting
unit. This was comprised of a before and after-tax impairment
charge of $6.8 billion related to goodwill and an after-tax
impairment charge of $1.2 billion ($1.6 billion before tax) to
reduce the carrying value of the Gillette indefinite-lived
intangible assets.
Anti-dilutive Impacts: The Shave
Care impairment charges caused certain equity instruments that are
normally dilutive (and hence normally assumed converted or
exercised for the purposes of determining diluted net earnings per
share) to be anti-dilutive. Accordingly, for U.S. GAAP, these
instruments were not assumed to be converted or exercised.
Specifically, in the fourth quarter and total fiscal 2019, weighted
average outstanding preferred shares were not included in the
diluted weighted average common shares outstanding. Additionally,
in the fourth quarter of fiscal 2019, none of our outstanding
share-based equity awards were included in the diluted weighted
average common shares outstanding. As a result of the non-GAAP
Shave Care impairment adjustment, these instruments are dilutive
for non-GAAP earnings per share.
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. 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 from the July 1, 2018 adoption of new accounting standards
for "Revenue from Contracts with Customers", 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 selling, general and administrative
(SG&A) expense as a percentage of net sales: Core
SG&A expense as a percentage of net sales is a measure of the
Company's selling, general and administrative expenses 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 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.
Free cash flow and Adjusted free cash
flow: Free cash flow is defined as operating cash flow less
capital spending. Adjusted free cash flow is defined as free cash
flow excluding payments for the transitional tax resulting from the
comprehensive U.S. legislation commonly referred to as the Tax Cuts
and Jobs Act in December 2017 (the “U.S. Tax Act”). 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, share repurchases, acquisitions and other
discretionary investments.
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 gain on dissolution of the PGT Healthcare partnership
and the Shave Care impairment loss. This gain and loss 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.
* Measure is used to evaluate senior
management and is a factor in determining their at-risk
compensation.
THE PROCTER & GAMBLE COMPANY
AND SUBSIDIARIES
(Amounts in Millions Except Per
Share Amounts)
Reconciliation of Non-GAAP
Measures
Three Months Ended June 30,
2019
AS
REPORTED
(GAAP)
ANTI-DILUTIVE
IMPACTS
INCREMENTAL
RESTRUCTURING
SHAVE CARE
IMPAIRMENT
ROUNDING
NON-GAAP
(CORE)
COST OF PRODUCTS SOLD
8,938
—
(192
)
—
—
8,746
GROSS PROFIT
8,156
—
192
—
—
8,348
GROSS MARGIN
47.7
%
—
%
1.1
%
—
%
—
%
48.8
%
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSE
5,003
—
(5
)
—
—
4,998
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE AS A % OF NET SALES
29.3
%
—
%
—
%
—
%
(0.1
)%
29.2
%
OPERATING INCOME
(5,192
)
—
197
8,345
—
3,350
OPERATING PROFIT MARGIN
(30.4
)%
—
%
1.1
%
48.8
%
0.1
%
19.6
%
NET EARNINGS ATTRIBUTABLE TO
P&G
(5,241
)
—
164
7,978
—
2,901
Core EPS:
Diluted Net Earnings attributable to
common shareholders (1)
(5,308
)
67
164
7,978
—
2,901
Diluted Weighted Average Common Shares
Outstanding (1)
2,509.6
136.3
2,645.9
DILUTED NET EARNINGS PER COMMON
SHARE
(2.12
)
0.14
0.06
3.02
—
1.10
CURRENCY IMPACT TO CORE
EARNINGS
0.08
CURRENCY-NEUTRAL CORE EPS
1.18
DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
2,509.6
COMMON STOCK OUTSTANDING AS OF JUNE 30,
2019
2,498.1
(1)
The reduction in net earnings
from the current period charge for the Shave Care impairment caused
the preferred shares outstanding to be anti-dilutive. Accordingly,
for U.S. GAAP, the preferred shares were not assumed to be
converted into common shares for diluted earnings per share and the
related dividends paid to the preferred shareholders were deducted
from net income to calculate earnings available to common
shareholders. Excluding the impairment charge results in higher
non-GAAP earnings, which causes the preferred shares to be
dilutive. The adjustments in these rows are made to reflect the
dilutive preferred share impact resulting from the Shave Care
impairment charge adjustment. Weighted average shares also adds
back share-based equity awards that were anti-dilutive for U.S.
GAAP purposes as a result of the Shave Care impairment.
CHANGE VERSUS YEAR AGO
CORE GROSS MARGIN
120
BPS
CORE SELLING GENERAL & ADMINISTRATIVE
EXPENSE AS A % OF NET SALES
(20
)
BPS
CORE OPERATING PROFIT MARGIN
130
BPS
CORE EPS
17
%
CURRENCY-NEUTRAL CORE EPS
26
%
THE PROCTER & GAMBLE COMPANY
AND SUBSIDIARIES
(Amounts in Millions Except Per
Share Amounts)
Reconciliation of Non-GAAP
Measures
Three Months Ended June 30,
2018
AS REPORTED
(GAAP)
INCREMENTAL
RESTRUCTURING
TRANSITIONAL
IMPACTS OF THE
U.S. TAX ACT
EARLY DEBT
EXTINGUISHMENT
ROUNDING
NON-GAAP
(CORE)
COST OF PRODUCTS SOLD
9,070
(428
)
—
—
(1
)
8,641
GROSS PROFIT
7,433
428
—
—
1
7,862
GROSS MARGIN
45.0
%
2.6
%
—
%
—
%
—
%
47.6
%
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSE
4,846
(3
)
—
—
2
4,845
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE AS A % OF NET SALES
29.4
%
—
%
—
%
—
%
—
%
29.4
%
OPERATING INCOME
2,587
431
—
—
(1
)
3,017
OPERATING PROFIT MARGIN
15.7
%
2.6
%
—
%
—
%
—
%
18.3
%
NET EARNINGS ATTRIBUTABLE TO
P&G
1,891
368
(48
)
243
(1
)
2,453
Core EPS:
DILUTED NET EARNINGS PER COMMON
SHARE*
0.72
0.14
(0.02
)
0.09
0.01
0.94
DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
2,620.9
*
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
Twelve Months Ended June 30,
2019
AS
REPORTED
(GAAP)
ANTI-
DILUTIVE
IMPACTS
INCREMENTAL
RESTRUCTURING
SHAVE CARE
IMPAIRMENT
GAIN ON
DISSOLUTION OF
PGT
PARTNERSHIP
ROUNDING
NON-GAAP
(CORE)
COST OF PRODUCTS SOLD
34,768
—
(426
)
—
—
—
34,342
GROSS PROFIT
32,916
—
426
—
—
—
33,342
GROSS MARGIN
48.6
%
—
%
0.6
%
—
%
—
%
0.1
%
49.3
%
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSE
19,084
—
23
—
—
(1
)
19,106
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE AS A % OF NET SALES
28.2
%
—
%
—
%
—
%
—
%
—
%
28.2
%
OPERATING INCOME
5,487
—
403
8,345
—
1
14,236
OPERATING PROFIT MARGIN
8.1
%
—
%
0.6
%
12.3
%
—
%
—
%
21.0
%
NET EARNINGS ATTRIBUTABLE TO
P&G
3,897
—
354
7,978
(353
)
1
11,877
Core EPS:
Diluted Net Earnings attributable to
common shareholders (1)
3,634
263
354
7,978
(353
)
1
11,877
Diluted Weighted Average Common Shares
Outstanding (1)
2,539.5
90.2
2,629.7
DILUTED NET EARNINGS PER COMMON
SHARE
1.43
0.06
0.13
3.03
(0.13
)
—
4.52
CURRENCY IMPACT TO CORE
EARNINGS
0.35
CURRENCY-NEUTRAL CORE EPS
4.87
DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
2,539.5
COMMON STOCK OUTSTANDING AS OF JUNE 30,
2019
2,498.1
(1)
The reduction in net earnings from the
current period charge for Shave Care impairment caused the
preferred shares outstanding to be anti-dilutive. Accordingly, for
U.S. GAAP, the preferred shares were not assumed to be converted
into common for diluted earnings per share and the related
dividends paid to the preferred shareholders were deducted from net
income to calculate earnings available to common shareholders.
Excluding the impairment charge results in higher non-GAAP
earnings, which causes the preferred shares to be dilutive. The
adjustments in these rows are made to reflect the dilutive
preferred share impact resulting from the Shave Care impairment
charge adjustment.
CHANGE VERSUS YEAR AGO
CORE EPS
7
%
CURRENCY NEUTRAL CORE EPS
15
%
THE PROCTER & GAMBLE COMPANY
AND SUBSIDIARIES
(Amounts in Millions Except Per
Share Amounts)
Reconciliation of Non-GAAP
Measures
Twelve Months Ended June 30,
2018
AS
REPORTED
(GAAP)
INCREMENTAL
RESTRUCTURING
TRANSITIONAL
IMPACTS OF THE
U.S. TAX ACT
EARLY DEBT
EXTINGUISHMENT
ROUNDING
NON-GAAP
(CORE)
COST OF PRODUCTS SOLD
34,432
(724
)
—
—
(1
)
33,707
GROSS PROFIT
32,400
724
—
—
1
33,125
GROSS MARGIN
48.5
%
1.1
%
—
%
—
%
—
%
49.6
%
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSE
19,037
(1
)
—
—
1
19,037
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE AS A % OF NET SALES
28.5
%
—
%
—
%
—
%
—
%
28.5
%
OPERATING INCOME
13,363
725
—
—
—
14,088
OPERATING PROFIT MARGIN
20.0
%
1.1
%
—
%
—
%
—
%
21.1
%
NET EARNINGS ATTRIBUTABLE TO
P&G
9,750
610
602
243
(1
)
11,204
Core EPS:
DILUTED NET EARNINGS PER COMMON
SHARE*
3.67
0.23
0.23
0.09
—
4.22
DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
2,656.7
*
Diluted net earnings per share are
calculated on Net earnings attributable to Procter &
Gamble.
Organic sales growth:
The reconciliation of reported sales growth to organic sales is
as follows:
April - June
2019
Net
Sales
Growth
Foreign
Exchange
Impact
Acquisition &
Divestiture
Impact/Other*
Organic
Sales
Growth
Beauty
3%
5%
—%
8%
Grooming
(3)%
6%
1%
4%
Health Care
13%
4%
(7)%
10%
Fabric & Home Care
5%
4%
1%
10%
Baby, Feminine & Family Care
1%
4%
—%
5%
Total Company
4%
4%
(1)%
7%
FY
2019
Net
Sales
Growth
Foreign
Exchange
Impact
Acquisition &
Divestiture
Impact/Other*
Organic
Sales
Growth
Total Company
1%
4%
—%
5%
*
Other includes the sales mix impact from
acquisitions and divestitures, the impact from the July 1, 2018
adoption of new accounting standards for "Revenue from Contracts
with Customers" and rounding impacts necessary to reconcile volume
to net sales.
Total
Company
Net
Sales Growth
Combined
Foreign Exchange &
Acquisition/Divestiture Impact*
Organic
Sales
Growth
FY 2020 (Estimate)
+3% to +4%
-%
+3% to +4%
*
Other includes rounding impacts necessary
to reconcile volume to net sales.
Core EPS:
Total
Company
Diluted
EPS
Growth
Impact
of Change in Non-Core Items*
Core
EPS
Growth
FY 2020 (Estimate)
+222% to +240%
(218%) to (231%)
+4% to +9%
*
Includes impact of gain on PGT Healthcare
joint venture dissolution and Shave Care impairment in fiscal year
2019 and year over year changes in incremental non-core
restructuring charges.
Adjusted free cash flow (dollars in
millions):
Three
Months Ended June 30, 2019
Operating Cash Flow
Capital
Spending
Free
Cash Flow
$4,151
$(814)
$3,337
Twelve
Months Ended June 30, 2019
Operating Cash Flow
Capital
Spending
U.S. Tax
Act Payments
Adjusted
Free Cash Flow
$15,242
$(3,347)
$235
$12,130
Adjusted free cash flow productivity
(dollars in millions):
Three
Months Ended June 30, 2019
Net
Earnings
Adjustment to Net
Earnings (1)
Adjusted
Net
Earnings
Free
Cash Flow
Adjusted
Free
Cash
Flow
Productivity
$(5,237)
$7,978
$2,741
$3,337
122%
(1)
Adjustment to Net Earnings relates to the
Shave Care impairment charge.
Twelve
Months Ended June 30, 2019
Net
Earnings
Adjustments to Net
Earnings (1)
Adjusted
Net
Earnings
Adjusted
Free
Cash
Flow
Adjusted
Free
Cash
Flow
Productivity
$3,966
$7,625
$11,591
$12,130
105%
(1)
Adjustments to Net Earnings relate to the
gain on the dissolution of the PGT Healthcare joint venture and the
Shave Care impairment charge.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190730005529/en/
P&G Media Contacts:
Damon Jones, 513.983.0190 Jennifer Corso, 513.983.2570
P&G Investor Relations
Contact: John Chevalier, 513.983.9974
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