The FINANCIAL — The Procter & Gamble Company reported first quarter fiscal year 2017 net sales of $16.5 billion, unchanged versus the prior year. Organic sales increased three percent.
Organic sales increased in all five business segments driven by low-to-mid single digit organic volume growth in all segments. Diluted net earnings per share were $0.96, an increase of five percent versus the prior year. Core earnings per share were $1.03, an increase of five percent versus the prior year. Currency-neutral core EPS increased 12% versus the prior year. Reported operating profit margin was unchanged. Core operating profit margin increased 20 basis points as improvement in core gross margin was partially offset by an increase in core SG&A costs as a percent of net sales, according to Procter & Gamble.
Operating cash flow was $3.0 billion for the quarter. Free cash flow productivity was 85%. The Company repurchased $1 billion of common stock and returned $1.9 billion of cash to shareholders as dividends.
“Our first quarter results mark a good start to the fiscal year,” said Chairman, President and Chief Executive Officer David Taylor. “We delivered broad-based organic sales growth improvement across product categories and markets, as well as strong cost savings. Earlier this month, we completed the last major step in P&G’s portfolio transformation with the Beauty Brands divestiture to Coty Inc. We are now focusing all our efforts on 10 large, structurally attractive categories where P&G holds leading positions. We’re pleased with the progress we’re making, but there is still more work to do to get back to the levels of balanced top- and bottom-line growth and cash generation that will consistently put P&G shareholder value creation among the best in our industry.”
July – September Quarter Discussion
Net sales in the first quarter of fiscal year 2017 were $16.5 billion, unchanged versus prior year, including a negative three percent impact from foreign exchange. Organic sales increased three percent driven by a three percent increase in organic shipment volume. All-in volume increased two percent including the impacts of minor brand divestitures and lost sales to Venezuelan subsidiaries.
Beauty segment organic sales increased three percent versus year ago behind higher organic volume and increased pricing in both Hair Care and Skin & Personal Care. Organic sales increased in Skin & Personal Care due to the continued strong growth of the super-premium SK-II brand. Hair Care growth was driven by mid-single-digit organic sales growth on both Pantene and Head & Shoulders which was partially offset by declines of smaller brands.
Grooming segment organic sales increased three percent due to strong innovation-driven organic volume growth in both Shave Care and Appliances. Organic sales increased low single digits in Shave Care and mid-single digits in Appliances.
Health Care segment organic sales increased seven percent driven by double-digit growth in Personal Health Care from innovation and pricing. Oral Care organic sales grew mid-single digits due to broad-based volume growth and favorable product mix from power toothbrushes and pricing.
Fabric & Home Care segment organic sales increased four percent versus year ago driven by mid-single-digit growth in both Fabric Care and Home Care. Fabric Care organic sales growth was led by high single-digit growth in developed markets behind product innovation and marketing investments. Home Care delivered mid-single-digit organic sales growth in developed and developing markets behind the expansion of product innovation.
Baby, Feminine & Family Care segment organic sales increased two percent driven by mid-single-digit organic volume growth in all three businesses. Baby Care organic sales increased low single digits behind market growth, product innovation and consumer value corrections. Feminine Care organic sales increased low single digits behind mid-single-digit volume growth in both developed and developing markets. Family Care organic sales increased low single digits driven by new product innovation.
Diluted net earnings per share from continuing operations were $1.00, an increase of four percent over the base period. Diluted net earnings per share were $0.96, an increase of five percent versus the prior year. Current year results included a $0.04 per share loss from discontinued operations and non-core restructuring costs of $0.03 per share. Core earnings per share, which exclude non-core restructuring charges and the results of discontinued operations, were $1.03, an increase of five percent versus the prior year. Excluding the impact of foreign exchange, currency-neutral core earnings per share increased 12% for the quarter.
Reported gross margin increased 30 basis points, including a 20 basis point increase in non-core restructuring charges. Core gross margin improved 50 basis points, including 80 basis points of negative foreign exchange impacts. On a currency-neutral basis, core gross margin increased 130 basis points, driven by 190 basis points of productivity cost savings and 20 basis points of volume growth leverage. These benefits more than offset headwinds from unfavorable mix, innovation and capacity investments and commodity cost increases.
Selling, general and administrative expense (SG&A) as a percent of sales increased 20 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 40 basis points, including 30 basis points of unfavorable foreign exchange impacts. On a currency-neutral basis, core SG&A was up 10 basis points versus the prior year as increased advertising and sampling investments were partially offset by productivity savings in overhead and marketing costs.
Reported operating profit margin was unchanged. Core operating profit margin increased 20 basis points versus the prior year, including 100 basis points of foreign exchange impacts. On a currency-neutral basis, core operating profit margin increased 120 basis points driven by productivity cost savings of 270 basis points for the quarter.
Fiscal Year 2017 Guidance
P&G said it is maintaining its projection for organic sales growth of approximately two percent for fiscal 2017. The Company expects the combined headwinds of foreign exchange and minor brand divestitures to reduce sales growth by about one percentage point. As a result, P&G continues to estimate all-in sales growth of about one percent for fiscal 2017.
The Company also maintains 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 45% to 50% versus fiscal year 2016 GAAP EPS of $3.69. The fiscal 2017 GAAP EPS estimate includes approximately $0.10 per share of non-core restructuring costs and $0.13 per share of charges related to early debt retirement that was initiated earlier this month. Also included in GAAP EPS is a significant gain from the divestiture of 41 beauty brands to Coty Inc. The exact earnings gain from the transaction with Coty, which closed October 1, 2016, will be reported in the second quarter results.
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