Net Sales +3%; Organic
Sales +2%; Diluted Net EPS $0.93, -68%; Core EPS $1.19,
+10%
The Procter & Gamble Company (NYSE:PG) reported second
quarter fiscal year 2018 net sales of $17.4 billion, an increase of
three percent versus the prior year. Organic sales increased two
percent. Diluted net earnings per share were $0.93, a decline of
68% versus the prior year due to the Beauty Brands divestiture gain
in the base period and a current period net income tax charge
related to the recently enacted U.S. Tax Cuts and Jobs Act (the
“Tax Act”). Core earnings per share increased 10% to $1.19,
including a $0.05 per share benefit from the Tax Act.
Operating cash flow was $3.7 billion for the quarter. Adjusted
free cash flow productivity was 91%. The Company returned $3.6
billion of cash to shareholders via $1.8 billion of dividend
payments and $1.8 billion of common stock repurchase.
“We accelerated organic sales growth and delivered strong
productivity cost savings and cash flow," said David Taylor,
Chairman, President and Chief Executive Officer. “We remain on
track to achieve our fiscal year objectives.”
October - December Quarter Discussion
Net sales in the second quarter of fiscal year 2018 were $17.4
billion, an increase of three percent versus the prior year
including a one percent positive impact from foreign exchange.
Organic sales and volume both increased two percent. A one percent
positive mix impact from the disproportionate growth of higher
priced categories, Skin & Personal Care and Personal Health
Care, was offset by a negative pricing impact of one percent.
October -
December 2017
Foreign
Organic
Organic
Net Sales
Drivers (1)
Volume
Exchange
Price
Mix
Other
(2)
Net
Sales
Volume
Sales
Beauty 2% 1% —% 7% —% 10% 2% 9% Grooming 1% 2% (4)% —% —% (1)% 1%
(3)% Health Care 4% 3% (1)% 1% —% 7% 4% 4% Fabric & Home Care
3% 1% (1)% —% —% 3% 4% 3% Baby, Feminine & Family Care
(1)% 1% (1)% —% —% (1)%
(1)% (1)%
Total P&G
2% 1% (1)%
1% —% 3%
2% 2%
(1)
Net sales percentage changes are approximations based on
quantitative formulas that are consistently applied. (2) Other
includes the sales mix impact from acquisitions/divestitures, the
impact from India Goods and Services Tax implementation and
rounding impacts necessary to reconcile volume to net sales.
- Beauty segment organic sales increased
nine percent. Skin & Personal Care organic sales grew double
digits driven by Olay brand innovation and continued strong growth
of the super-premium SK-II brand. Hair Care organic sales increased
low single digits driven by growth of all major brands - Pantene,
Head & Shoulders, Herbal Essences and Rejoice.
- Grooming segment organic sales
decreased three percent. Shave Care organic sales decreased
mid-single digits primarily due to pricing reductions in the U.S.
which were partially offset by volume increases due to reduced
pricing and innovation. Appliances organic sales increased double
digits driven by innovation on the Braun brand.
- Health Care segment increased organic
sales four percent. Oral Care organic sales increased low single
digits driven by premium Oral-B power toothbrush innovation.
Personal Health Care organic sales increased high single digits
with increased consumption in the U.S. driven by an early and
intense Cough/Cold season and strong international shipments from
the PGT joint venture.
- Fabric and Home Care segment organic
sales increased three percent. Fabric Care organic sales increased
low single digits driven by unit dose detergent and scent bead
innovations and marketing and merchandising investments. Organic
sales in Home Care also increased low single digits driven by
marketing and merchandising investments.
- Baby, Feminine and Family Care segment
organic sales decreased one percent. Baby Care organic sales
declined mid-single digits due to competitive activity and trade
inventory reductions. Feminine Care organic sales grew mid-single
digits driven by innovation on the Always brand and positive mix
from premium tier growth. Family Care organic sales grew low single
digits driven by recent Charmin innovation and strong consumption
of Puffs.
Diluted net earnings per share were $0.93, a decrease of 68%
versus the prior year due to the gain from the Beauty Brands
divestiture in the base period and a current period income tax
charge from the transitional impact of the recently enacted U.S.
tax legislation. Diluted net earnings per share from continuing
operations were also $0.93, unchanged versus the base period. Core
earnings per share, which excludes non-core restructuring charges
and U.S. Tax Act transitional impacts, were $1.19, an increase of
10 percent versus the prior year, driven primarily by increased net
sales and a lower core effective tax rate. Impacts from the Tax Act
and foreign exchange each contributed approximately four percentage
points to core earnings per share growth, and higher commodity
costs reduced core earnings per share growth by approximately four
percentage points.
Reported gross margin decreased 60 basis points, including
approximately 20 basis points favorable impact from lower non-core
restructuring charges versus the prior year. Core gross margin
decreased 80 basis points, including 10 basis points of negative
foreign exchange impacts. On a currency-neutral basis, core gross
margin decreased 70 basis points. Productivity savings of 150 basis
points and 30 basis points of sales growth leverage and other helps
were more than offset by 90 basis points of commodity cost
increases, 70 basis points of unfavorable geographic and product
mix, 50 basis points of unfavorable pricing impacts and 40 basis
points of innovation reinvestments.
Selling, general and administrative expense (SG&A) as a
percent of sales decreased 60 basis points on a reported basis
versus the prior year, including 10 basis point unfavorable impact
from higher non-core restructuring charges versus the previous
year. Core SG&A as a percentage of sales decreased 80 basis
points versus the previous year including a benefit of
approximately 40 basis points from foreign exchange. On a
currency-neutral basis, Core SG&A as a percentage of sales
decreased 40 basis points, as 40 basis points of savings in
overhead, agency fees and advertising production costs and 40 basis
points of sales growth leverage were partially offset by
reinvestments in research & development and information
technology. Media spending was in-line with prior year levels.
Reported operating profit margin was unchanged versus the base
period. Core operating profit margin decreased 10 basis points
including approximately 20 basis points of favorable foreign
exchange. On a currency-neutral basis, core operating profit margin
decreased 30 basis points. Productivity cost savings contributed
190 basis points of margin benefit for the quarter.
U.S. Tax Reform
On December 22, 2017, the U.S. government enacted comprehensive
tax legislation commonly referred to as the Tax Cuts and Jobs Act
(the “Tax Act”). The Tax Act reduces the federal tax rate on U.S.
earnings to 21% and moves from a global taxation regime to a
modified territorial regime. As we have a June 30 fiscal year-end,
the lower tax rate will be phased in, resulting in a U. S.
statutory federal rate of approximately 28% for P&G’s fiscal
year ending June 30, 2018. However, there are offsets to the lower
tax rate, the most significant being the inherent disallowance
under the Act of previously available U.S. tax credits and the loss
of the domestic manufacturing deduction. For the quarter ended
December 31, 2017 and fiscal 2018, these impacts are resulting in a
net benefit of approximately $135 million. The benefit will
increase in future years as the 21% rate is fully phased in.
As part of the Tax Act, U.S. companies are required to pay a tax
on historical earnings generated offshore that have not been
repatriated to the U.S. There are several items which partially
offset this charge, the most significant of which is a revaluation
of a large net deferred tax liability position at the lower federal
base rate of 21 percent. These transitional impacts resulted in a
provisional net charge of $628 million for the quarter ended
December 31, 2017, comprised of an estimated repatriation tax
charge of $3.8 billion (comprised of the U.S. repatriation taxes
and foreign withholding taxes) and a net deferred tax benefit of
approximately $3.2 billion.
Fiscal Year 2018 Guidance
P&G said it is maintaining its guidance for organic sales
growth in the range of two to three percent for fiscal 2018. The
Company estimates all-in sales growth of about three percent for
fiscal 2018, which includes a neutral to half-a-percentage-point
benefit to sales growth from the combined impacts of acquisitions
and divestitures and foreign exchange.
P&G said it is raising its core earnings per share growth
outlook from five to seven percent to five to eight percent versus
fiscal 2017 Core EPS of $3.92. It is raising the upper-end of the
guidance range to reflect the potential benefit from the Tax Act.
GAAP earnings per share are expected to decrease 30% to 32% versus
fiscal year 2017 GAAP EPS of $5.59, which included the significant
benefit from the Beauty Brands transaction that was completed in
October 2016. The fiscal 2018 GAAP EPS estimate includes
approximately $0.10 per share of non-core restructuring costs and
$0.24 per share of non-core charges related to the Tax Act.
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 health care; (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, 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, 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 December 31 Six Months
Ended December 31 2017 2016 %
Chg 2017 2016 % Chg NET
SALES $ 17,395 $ 16,856 3 % $ 34,048 $ 33,374 2 % Cost of
products sold 8,667 8,298 4 % 16,896 16,400
3 %
GROSS PROFIT 8,728 8,558 2 % 17,152 16,974 1 %
Selling, general and administrative expense 4,725 4,683
1 % 9,414 9,328 1 %
OPERATING INCOME
4,003 3,875 3 % 7,738 7,646 1 % Interest expense 122 122 — % 237
253 (6 )% Interest income 66 42 57 % 115 77 49 % Other
non-operating income/(expense), net 86 (539 ) (116 )% 168
(476 ) (135 )%
EARNINGS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 4,033 3,256 24 % 7,784 6,994 11 % Income taxes on
continuing operations 1,472 695 112 % 2,353
1,558 51 %
NET EARNINGS FROM CONTINUING OPERATIONS
2,561 2,561 — % 5,431 5,436 — %
NET
EARNINGS FROM DISCONTINUED OPERATIONS — 5,335 N/A
— 5,217 N/A
NET EARNINGS 2,561 7,896
(68 )% 5,431 10,653 (49 )% Less: Net earnings
attributable to noncontrolling interests 66 21 214 %
83 64 30 %
NET EARNINGS ATTRIBUTABLE TO PROCTER
& GAMBLE $ 2,495 $ 7,875 (68 )% $ 5,348
$ 10,589 (49 )%
EFFECTIVE TAX RATE 36.5
% 21.3 % 30.2 % 22.3 %
BASIC NET EARNINGS PER COMMON SHARE
(1)
Earnings from continuing operations $ 0.96 $ 0.96 — % $ 2.05 $ 1.99
3 % Earnings from discontinued operations $ — $ 2.05
N/A $ — $ 1.98 N/A
BASIC NET EARNINGS PER COMMON
SHARE $ 0.96 $ 3.01 (68 )% $ 2.05 $ 3.97
(48 )%
DILUTED NET EARNINGS PER COMMON SHARE
(1) Earnings from continuing operations $ 0.93 $ 0.93 — % $
2.00 $ 1.93 4 % Earnings from discontinued operations $ — $
1.95 N/A $ — $ 1.88 N/A
DILUTED NET
EARNINGS PER COMMON SHARE $ 0.93 $ 2.88 (68 )% $
2.00 $ 3.81 (48 )%
DIVIDENDS PER COMMON SHARE
$ 0.6896 $ 0.6695 $ 1.3790 $ 1.3390 Diluted Weighted Average Common
Shares Outstanding 2,669.6 2,737.6 2,680.1 2,780.2
Basis
Pt Basis Pt COMPARISONS AS A % OF NET SALES
Chg Chg Gross Margin 50.2% 50.8% (60) 50.4% 50.9%
(50) Selling, general and administrative expense 27.2% 27.8% (60)
27.6% 27.9% (30) Operating Margin 23.0% 23.0% — 22.7% 22.9% (20)
Earnings from continuing operations before income taxes 23.2% 19.3%
390 22.9% 21.0% 190 Net earnings from continuing operations 14.7%
15.2% (50) 16.0% 16.3% (30) Net earnings attributable to Procter
& Gamble 14.3% 46.7% (3,240) 15.7% 31.7% (1,600) (1)
Basic net earnings per share and Diluted net earnings per 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, 2017 % 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 $ 3,233 10 % $
853 19 % $ 655 21 % Grooming 1,776 (1 )% 531 (14 )% 423 (10 )%
Health Care 2,212 7 % 668 10 % 455 8 % Fabric & Home Care 5,434
3 % 1,101 (2 )% 714 (2 )% Baby, Feminine & Family Care 4,613 (1
)% 933 (10 )% 597 (12 )% Corporate 127 (8 )% (53 ) N/A (283
) N/A
Total Company $ 17,395 3
% $ 4,033 24 % $
2,561 — % Three
Months Ended December 31, 2017
(Percent Change vs. Year Ago)
(1)
Volume with Volume Excluding
Acquisitions & Acquisitions
& Foreign Net Sales Divestitures
Divestitures Exchange
Price Mix
Other (2)
Growth Beauty 2% 2% 1% —% 7% —% 10% Grooming 1% 1% 2%
(4)% —% —% (1)% Health Care 4% 4% 3% (1)% 1% —% 7% Fabric &
Home Care 3% 4% 1% (1)% —% —% 3% Baby, Feminine & Family Care
(1)% (1)% 1% (1)% —% —%
(1)%
Total Company 2% 2%
1% (1)% 1% —%
3% THE PROCTER & GAMBLE COMPANY
AND SUBSIDIARIES
(Amounts in Millions)
Consolidated Earnings Information Six
Months Ended December 31, 2017 % 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
$ 6,371 7 % $ 1,689 13 % $ 1,287 14 % Grooming 3,353 (3 )% 945 (17
)% 752 (15 )% Health Care 4,114 5 % 1,123 2 % 760 2 % Fabric &
Home Care 10,817 2 % 2,280 1 % 1,483 2 % Baby, Feminine &
Family Care 9,158 (1 )% 1,897 (9 )% 1,227 (11 )% Corporate 235
(4 )% (150 )
N/A
(78 ) N/A
Total Company $ 34,048
2 % $ 7,784 11 %
$ 5,431 — %
Six Months Ended December 31, 2017 (Percent Change vs.
Year Ago) (1) Volume with Volume
Excluding Acquisitions
& Acquisitions & Foreign Net Sales
Divestitures Divestitures
Exchange Price Mix
Other (2)
Growth Beauty 1% 1% —% 1% 5% —% 7% Grooming —% —% 2%
(4)% (1)% —% (3)% Health Care 2% 2% 2% —% 1% —% 5% Fabric &
Home Care 3% 3% —% —% (1)% —% 2% Baby, Feminine & Family Care
(1)% —% 1% (1)% —% —%
(1)%
Total Company 1% 2%
1% (1)% 1% —%
2% (1) Net sales percentage changes are
approximations based on quantitative formulas that are consistently
applied. (2) Other includes the sales mix impact from
acquisitions/divestitures, the impact from India Goods and Services
Tax implementation 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
Amounts in
millions
2017 2016 CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD $ 5,569 $ 7,102
OPERATING ACTIVITIES
Net earnings 5,431 10,653 Depreciation and amortization 1,368 1,435
Loss on early extinguishment of debt — 543 Share-based compensation
expense 157 104 Deferred income taxes (2,008 ) (448 ) Gain on sale
of assets (158 ) (5,343 ) Changes in: Accounts receivable (547 )
(595 ) Inventories (457 ) (247 ) Accounts payable, accrued and
other liabilities 857 (296 ) Other operating assets and liabilities
2,524 152 Other 148 67
TOTAL OPERATING
ACTIVITIES 7,315 6,025
INVESTING
ACTIVITIES Capital expenditures (1,900 ) (1,429 ) Proceeds from
asset sales 201 280 Acquisitions, net of cash acquired (101 ) (16 )
Purchases of short-term investments (3,598 ) (1,739 ) Proceeds from
sales and maturities of short-term investments 1,643 354
Pre-divestiture addition of restricted cash related to the Beauty
Brands divestiture — (874 ) Cash transferred at closing related to
the Beauty Brands divestiture — (475 ) Release of restricted cash
upon closing of the Beauty Brands divestiture — 1,870 Change in
other investments 50 8
TOTAL INVESTING
ACTIVITIES (3,705 ) (2,021 )
FINANCING ACTIVITIES
Dividends to shareholders (3,636 ) (3,637 ) Change in short-term
debt 1,524 2,715 Additions to long-term debt 5,072 2,641 Reductions
of long-term debt (1,281 ) (5,029 ) (1) Treasury stock purchases
(4,253 ) (2,503 ) Impact of stock options and other 698
1,074
TOTAL FINANCING ACTIVITIES (1,876 ) (4,739 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
129 (316 )
CHANGE IN CASH AND CASH EQUIVALENTS 1,863
(1,051 )
CASH AND CASH EQUIVALENTS, END OF PERIOD $
7,432 $ 6,051 (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, 2017 June 30, 2017 Cash
and cash equivalents $ 7,432 $ 5,569 Available-for-sale investment
securities 11,326 9,568 Accounts receivable 5,182 4,594 Inventories
5,131 4,624 Prepaid expenses and other current assets 2,143 2,139
TOTAL CURRENT ASSETS 31,214 26,494 Property, plant and
equipment, net 20,420 19,893 Goodwill 45,624 44,699 Trademarks and
other intangible assets, net 24,224 24,187 Other noncurrent assets
5,162 5,133
TOTAL ASSETS $ 126,644 $ 120,406 Accounts
payable $ 9,740 $ 9,632 Accrued and other liabilities 7,820 7,024
Debt due within one year 15,547 13,554
TOTAL CURRENT
LIABILITIES 33,107 30,210 Long-term debt 22,186 18,038 Deferred
income taxes 6,145 8,126 Other noncurrent liabilities 10,485 8,254
TOTAL LIABILITIES 71,923 64,628
TOTAL SHAREHOLDERS'
EQUITY 54,721 55,778
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 126,644 $ 120,406
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 23, 2018 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, Procter & Gamble began a $10
billion strategic productivity and cost savings initiative that
includes incremental restructuring activities. In 2016, the Company
communicated additional multi-year productivity and cost savings
targets. 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.
Transitional Impact of U.S. Tax
Reform: As discussed in Note 2 to the Consolidated Financial
Statements, the U.S. government enacted comprehensive tax
legislation commonly referred to as the Tax Cuts and Jobs Act (the
“Tax Act”) in December 2017. This resulted in a net charge of $628
million for the quarter ended December 31, 2017, comprised of an
estimated repatriation tax charge of $3.8 billion and a net
deferred tax benefit of $3.2 billion. 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
current year earnings.
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 these 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
of acquisitions, divestitures, the impact from India Goods and
Services Tax changes (which were effective on July 1, 2017) 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.
Free cash flow: Free cash flow is
defined as operating cash flow less capital spending. Free cash
flow represents the cash that the Company is able to generate after
taking into account planned maintenance and asset expansion.
Management views 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 free cash flow to net earnings excluding
the transitional impact of U.S. Tax Reform, which is non-recurring
and not considered indicative of underlying earnings or cash flow
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, 2017
TRANSITIONAL AS REPORTED
INCREMENTAL IMPACTS OF U.S. NON-GAAP
(GAAP) RESTRUCTURING TAX REFORM
ROUNDING (CORE) COST OF PRODUCTS SOLD 8,667
(86 ) — 1 8,582
GROSS PROFIT 8,728 86 — (1 ) 8,813
GROSS
MARGIN 50.2 % 0.5 % — % — % 50.7 %
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 4,725 14 — (1 ) 4,738
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSE AS A % OF NET SALES 27.2 %
0.1 % — % (0.1 )% 27.2 %
OPERATING INCOME 4,003 72 — — 4,075
OPERATING PROFIT MARGIN 23.0 % 0.4 % — % — % 23.4 %
INCOME TAX ON CONTINUING OPERATIONS 1,472 21 (628 ) — 865
NET EARNINGS ATTRIBUTABLE TO P&G 2,495 51 628 — 3,174
EFFECTIVE TAX RATE 36.5 % (0.1 )% (15.3 )% — % 21.1 %
Core
EPS
DILUTED NET EARNINGS PER COMMON SHARE (1) 0.93
0.02 0.24 — 1.19
CURRENCY IMPACT TO CORE EARNINGS (0.04 ) CURRENCY-NEUTRAL
CORE EPS 1.15
DILUTED WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,669.6
COMMON SHARES OUTSTANDING -
DECEMBER 31, 2017 2,521.0 (1) Diluted net earnings per
share are calculated on Net earnings attributable to Procter &
Gamble.
CHANGE VERSUS YEAR AGO
CORE GROSS MARGIN (80 ) BPS CORE SELLING
GENERAL & ADMINISTRATIVE EXPENSE AS A % OF NET SALES (80 ) BPS
CORE OPERATING PROFIT MARGIN (10 ) BPS CORE EFFECTIVE TAX RATE (240
) BPS CORE EPS 10 % CURRENCY-NEUTRAL CORE EPS 6 % 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 (GAAP)
OPERATIONS RESTRUCTURING EXTINGUISHMENT
ROUNDING NON-GAAP (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 (1) 2.88
(1.95 ) 0.03 0.13 (0.01 )
1.08
DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,737.6 (1) 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, 2017 TRANSITIONAL
AS REPORTED INCREMENTAL IMPACTS OF
U.S. NON-GAAP (GAAP) RESTRUCTURING TAX
REFORM ROUNDING (CORE) COST OF PRODUCTS
SOLD 16,896 (186 ) — 1 16,711
GROSS PROFIT 17,152 186 —
(1 ) 17,337
GROSS MARGIN 50.4 % 0.5 % — % — % 50.9 %
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 9,414 19 — (1 )
9,432
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE AS A % OF NET
SALES 27.6 % 0.1 % — % — % 27.7 %
OPERATING INCOME 7,738
167 — — 7,905
OPERATING PROFIT MARGIN 22.7 % 0.5 % — % — %
23.2 %
INCOME TAX ON CONTINUING OPERATIONS 2,353 41 (628 ) —
1,766
NET EARNINGS ATTRIBUTABLE TO P&G 5,348 126 628 —
6,102
EFFECTIVE TAX RATE 30.2 % (0.1 )% (7.9 )% — % 22.2 %
Core
EPS
DILUTED NET EARNINGS PER COMMON SHARE (1) 2.00
0.05 0.23 — 2.28
CURRENCY IMPACT TO CORE EARNINGS (0.04 ) CURRENCY-NEUTRAL
CORE EPS 2.24
DILUTED WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,680.1 (1) 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 (40 ) BPS
CORE OPERATING PROFIT MARGIN (20 ) BPS CORE EFFECTIVE TAX RATE (100
) BPS CORE EPS 8 % CURRENCY-NEUTRAL CORE EPS 6 % 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 (GAAP)
OPERATIONS RESTRUCTURING EXTINGUISHMENT
ROUNDING NON-GAAP (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 (1) 3.81
(1.88 ) 0.05 0.12 0.01
2.11
DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,780.2 (1) 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 2017
Net Sales
Growth
Impact
Impact(1)
Growth
Beauty 10% (1)% —% 9% Grooming (1)% (2)% —% (3)% Health Care 7%
(3)% —% 4% Fabric & Home Care 3% (1)% 1% 3% Baby, Feminine
& Family Care (1)% (1)% 1% (1)%
Total P&G 3% (1)%
—% 2% (1) Acquisition/Divestiture
Impact includes both the volume and mix impact of acquisitions and
divestitures and also includes the impact of India Goods and
Services Tax changes and rounding impacts necessary to reconcile
net sales to organic sales.
Combined Foreign
Exchange &
Organic
Sales
Total
P&G
Net Sales
Growth
Acquisition/Divestiture Impact
Growth
FY 2018(Estimate)
About 3% (0.5)% to 0% +2% to +3%
Core EPS :
Diluted
EPS
Total
P&G
Growth
Impact of
Incremental Non-Core Items (1)
Core EPS
Growth
FY 2018(Estimate)
(30)% to (32)% +37% to +38% +5% to +8% (1)
Includes impact of U.S. Tax Act in 2018, discontinued
operations and loss on early extinguishment of debt in 2017 and
year-over-year change in incremental non-core restructuring
charges.
Free cash flow (dollar amounts in
millions):
Three Months Ended December 31, 2017
Operating Cash
Flow
Capital
Spending
Free Cash
Flow
$3,684 $(768) $2,916
Adjusted free cash flow productivity
(dollar amounts in millions) :
Three Months Ended December 31, 2017
Net U.S. Tax
Reform
Adjusted Free
Cash
Free Cash
Flow
Net
Earnings
Charge
Adjusted Net
Earnings
Flow
Productivity
$2,916 $2,561 $628 $3,189 91%
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180123005799/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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