Net Sales in-line vs. YA; Organic Sales +4%; Diluted Net EPS $1.22, +15%; Core EPS $1.12, +3%;

Currency-Neutral Core EPS +11%; Maintains Organic Sales and Core EPS Guidance

CINCINNATI--(BUSINESS WIRE)-- The Procter & Gamble Company (NYSE:PG) reported first quarter fiscal year 2019 net sales of $16.7 billion, in-line with the year-ago level. Excluding the impacts of foreign exchange, acquisitions and divestitures, organic sales increased four percent. Diluted net earnings per share were $1.22, an increase of 15% versus the prior year. Core earnings per share increased three percent to $1.12. Currency-neutral core EPS increased 11% versus the prior year.

Operating cash flow was $3.6 billion for the quarter. Adjusted free cash flow productivity was 95%. The Company returned $3.1 billion of cash to shareholders via $1.9 billion of dividend payments and nearly $1.3 billion of common stock repurchases.

“We generated strong consumption, organic volume and organic sales in the first quarter. This keeps us on track to deliver our top- and bottom-line targets for the fiscal year,” said David Taylor, Chairman, President and Chief Executive Officer. “Our focus on superiority, productivity and improving P&G’s organization and culture is driving improved results.”

July - September Quarter Discussion

Net sales in the first quarter of fiscal year 2019 were $16.7 billion, in-line with the prior year. Unfavorable foreign exchange was a three percent hurt to sales for the quarter. Excluding the impacts of foreign exchange, acquisitions and divestitures, organic sales increased four percent driven by a three percent increase in shipment volume. Positive mix impact was a one percent help to organic sales due to the disproportionate organic growth of the Skin and Personal Care and Personal Health Care categories and strong growth in the United States. Pricing was neutral to the quarter.

July - September 2018 Volume Foreign Exchange Price Mix Other (2) Net Sales
Organic Volume Organic Sales Net Sales Drivers (1)
Beauty 3% (3)% 2% 3% —% 5% 3% 7%
Grooming 5% (4)% 1% (2)% (1)% (1)% 5% 4%
Health Care 1% (2)% —% (1)% (1)% (3)% 4% 4%
Fabric & Home Care 4% (2)% (1)% 1% —% 2% 5% 5%
Baby, Feminine & Family Care 1% (2)% (1)% —% (1)% (3)% 1% (1)%
Total P&G 3% (3)% —% 1% (1)% —% 3% 4%

(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 seven percent versus year ago. Skin and Personal Care organic sales increased double digits due to premium innovation, increased marketing investments and positive product mix from the disproportionate growth of the super-premium SK-II brand and Olay Skin Care, which each grew strong double-digits. Personal Care products, including Safeguard, Old Spice, Olay and Secret, delivered mid-single-digit growth. Hair Care organic sales increased low single digits due to increased pricing, innovation and improved retail executions.
• Grooming segment organic sales increased four percent. Shave Care organic sales increased mid-single digits driven by improved consumer value, product innovation, investments in its direct-to-consumer programs and increased pricing in certain markets, partially offset by negative mix. Appliances organic sales increased low single digits due to improved merchandising programs and underlying market growth.
• Health Care segment organic sales increased four percent. Oral Care organic sales increased low single digits due to innovation and increased merchandising investments. Personal Health Care organic sales increased double digits due to innovation, increased merchandising investments and price increases. Vicks organic sales grew strong double-digits. All-in sales declined due to the dissolution of the PGT Healthcare partnership.
• Fabric and Home Care segment organic sales increased five percent for the quarter. Fabric Care organic sales increased mid-single digits driven by innovation and strengthened merchandising programs. Home Care organic sales increased mid-single digits driven by innovation and improved retail executions.
• Baby, Feminine and Family Care segment organic sales decreased one percent versus year ago. Baby Care organic sales decreased mid-single digits as growth of premium-tier innovations were more than offset by declines on mid- and value-tier products and pricing investments to improve consumer value, primarily on the Luvs brand in the U.S. Feminine Care organic sales increased mid-single digits driven by innovation and positive product mix, due to the disproportionate growth of premium pad and adult incontinence products. Family Care organic sales increased mid-single digits due to innovation, increased distribution, and strengthened merchandising programs.

Diluted net earnings per share were $1.22, an increase of 15% versus the prior year, primarily due to a gain on the dissolution of our PGT Healthcare partnership. Core earnings per share were $1.12, an increase of three percent versus the prior year, as benefits from a lower tax rate due to implementation of the U.S. Tax Act was partially offset by a reduction in operating margin, driven largely by negative currency impacts and lower non-operating income. Currency-neutral core earnings per share increased 11% for the quarter.

Reported gross margin decreased 110 basis points, including approximately 30 basis points benefit from lower non-core restructuring charges versus the prior year. Core gross margin decreased 150 basis points, including 60 basis points of negative foreign exchange impacts. On a currency-neutral basis, core gross margin decreased 90 basis points, as 170 basis points of productivity savings were more than offset by 100 basis points of commodity cost increases and 160 basis points of unfavorable product mix, innovation and capacity start-up investments and other impacts.

Selling, general and administrative expense (SG&A) as a percentage of sales decreased 50 basis points on a reported basis versus the prior year, including approximately 20 basis points impact from a year-on-year increase in non-core restructuring charges. Core SG&A as a percentage of sales decreased 80 basis points versus the prior year, including 70 basis points of negative foreign exchange impacts. On a currency-neutral basis, core SG&A as a percentage of sales decreased 150 basis points driven primarily by 80 basis points of net savings from overhead, media, agency fee and advertising production cost productivity and 70 basis points of sales leverage.

Operating profit margin decreased 60 basis points versus the base period on a reported basis including approximately 10 basis points help from lower non-core restructuring charges. Core operating margin decreased 80 basis points including 130 basis points of negative foreign exchange impacts. On a currency-neutral basis, Core operating margin increased 50 basis points including total productivity cost savings of 250 basis points for the quarter.

Fiscal Year 2019 Guidance

P&G said it is maintaining its guidance for organic sales growth in the range of two to three percent for fiscal 2019. The Company now estimates fiscal 2019 all-in sales growth in the range of down two percent to in-line versus the prior fiscal year, which includes a headwind of three to four percentage points to sales growth from foreign exchange. The net effect of acquisitions and divestitures should have a modest positive impact on all-in sales growth.

The Company also maintained its expectation for core earnings per share growth of three to eight percent versus fiscal 2018 Core EPS of $4.22. This outlook includes an estimated $1.3 billion headwind from foreign exchange and higher commodity costs. On a currency-neutral basis, this guidance translates to Core EPS growth of eleven to sixteen percent. On an all-in GAAP basis, diluted net earnings per share are expected to increase seventeen to twenty-four percent versus the prior year.

The Company expects adjusted free cash flow productivity of 90% or better for fiscal 2019. P&G expects to pay over $7 billion in dividends and repurchase up to $5 billion of common shares.

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 etc etc.
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