P&G ANNOUNCES THIRD QUARTER EARNINGS
Net Sales +4%; Organic Sales +1%; Diluted Net EPS $0.95, +2%; Core EPS $1.00, +4%.
CINCINNATI, April 19, 2018 - The Procter & Gamble Company (NYSE:PG) reported third quarter fiscal year 2018 net sales of $16.3 billion, an increase of four percent versus the prior year. Organic sales increased one percent. Diluted net earnings per share were $0.95, an increase of two percent versus the prior
year while Core earnings per share increased four percent to $1.00.
Operating cash flow was $3.4 billion for the quarter. Adjusted free cash flow productivity was 95%.
The Company returned $3.2 billion of cash to shareholders through $1.8 billion of dividend payments and $1.4 billion of common stock repurchase. Earlier this month, P&G announced a 4 percent increase in its quarterly dividend, marking the 62nd consecutive year the Company has increased its dividend. P&G has been paying a dividend for 128 consecutive years, since its incorporation in 1890.
“We delivered modest top- and bottom-line growth in a challenging macro environment in the third quarter,” said David Taylor, Chairman, President and Chief Executive Officer. “We have large businesses in several difficult markets. The ecosystems in which we operate around the world are being disrupted and transformed. We will change at an even faster rate -- winning through superiority, cost and cash productivity and a strengthened organization and culture.”

January - March Quarter Discussion
Net sales in the third quarter of fiscal year 2018 were $16.3 billion, an increase of four percent versus the prior year period driven by a four percent positive impact from foreign exchange. Organic sales increased
one percent on organic volume growth of two percent. Product mix added a percent to organic sales growth due to the disproportionate growth of premium priced products, primarily in the Beauty segment. Pricing
rounded to a two percent negative impact due primarily to U.S. Shave Care pricing reductions and increased merchandising investments. P&G noted that several of the negative pricing impacts, including the U.S. Shave
Care reductions made last year, will begin to annualize in the next few quarters and that pricing trends should improve in the upcoming fiscal year.
January - March 2018
Volume Foreign Exchange Price Mix Other (2) Net Sales Organic Volume Organic
Net Sales Drivers (1) Sales
Beauty —% 5% (1)% 6% —% 10% —% 5%
Grooming 3% 5% (3)% (3)% —% 2% 3% (3)%
Health Care 3% 5% (2)% —% (1)% 5% 3% 1%
Fabric & Home Care 3% 4% (1)% —% —% 6% 4% 3%
Baby, Feminine & Family Care (2)% 3% (1)% —% —% —% (2)% (3)%
Total P&G 1% 4% (2)% 1% —% 4% 2% 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 India Goods and Services Taks implementation and rounding impacts necessary to reconcile volume to net sales.
• Beauty segment organic sales increased five percent. Skin and Personal Care organic sales increased double digits driven by continued strong growth of the super-premium SK-II brand and Olay Skin Care as well as premium innovation in the Personal Care category. Hair Care organic sales were unchanged as the impact from product innovation was offset by competitive activity.
• Grooming segment organic sales decreased three percent. Shave Care organic sales decreased low single digits primarily due to pricing reductions in the U.S. last April and product and geographic mix which were partially offset by volume increases due to increased price competitiveness.

Appliances organic sales were unchanged.
• Health Care segment organic sales increased one percent. Oral Care organic sales decreased low single digits due to trade inventory reductions, price reductions in the form of increased merchandising spending and the reversal of a U.S. toothpaste list price increase taken last year. Personal Health Care organic sales increased mid-single digits driven by strong cough/cold season and growth in international shipments from our PGT partnership.
• Fabric and Home Care segment organic sales increased three percent. Fabric Care organic sales increased low single digits driven by innovation and increased merchandising activities. Home Care organic sales grew mid-single digits led by innovation, increased merchandising activities and favorable mix from disproportionate growth of premium products.
• Baby, Feminine and Family Care segment organic sales decreased three percent.
Baby Care organic
sales declined mid-single digits due to trade inventory reductions and competitive activity including
reduced competitor pricing. Feminine Care grew organic sales low single digits driven by strong innovation performance on the Always/Whisper brand. Family Care organic sales decreased low single digits due to trade inventory reductions, increased trade merchandising spending and reduced competitor pricing.
Diluted net earnings per share were $0.95, an increase of two percent versus the prior year. Core earnings per share, which excludes non-core restructuring charges and U.S. Tax Act transitional impacts, were $1.00, an increase of four percent versus the prior year. The increase was driven by increased net sales partially offset by a reduction in operating margin due to gains on real estate sales in the base period. Foreign exchange contributed approximately three percentage points to core earnings per share growth, and higher commodity costs reduced core earnings per share growth by approximately five percentage points.
Reported gross margin decreased 100 basis points, including approximately 10 basis points favorable impact from lower non-core restructuring charges versus the prior year. Core gross margin decreased 110 basis points, including 20 basis points of negative foreign exchange impacts. On a currency-neutral basis, core gross margin decreased 90 basis points as 230 basis points of productivity savings were more than offset by 100 basis points of commodity cost increases, 110 basis points of unfavorable geographic and product mix, including 40 basis points of transportation cost hurts, 80 basis points of unfavorable pricing impacts and 30 basis points of innovation reinvestments.
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 30 basis points unfavorable impact from higher non-core
restructuring charges versus the previous year. Core SG&A as a percentage of sales decreased 10 basis points versus the previous year including 20 basis points of negative foreign exchange impacts. On a currencyneutral basis, Core SG&A as a percentage of sales decreased 30 basis points, as 80 basis points of savings in overhead, agency fee and advertising production costs were partially offset by reinvestments and gains on the sale of real estate in the base period.
Reported operating profit margin decreased approximately 130 basis points. Core operating profit margin decreased 100 basis points including approximately 30 basis points of negative foreign exchange.
On a currency-neutral basis, core operating profit margin decreased 70 basis points. Productivity cost savings contributed 310 basis points of margin benefit for the quarter.
Personal Health Care Transaction Earlier this morning, P&G announced it has signed an agreement to acquire the Merck KGaA
Consumer Health Care business, headquartered in Darmstadt, Germany. This move enables P&G to expand its successful over the counter (OTC) health care business by adding a fast-growing portfolio of differentiated,
physician-supported, multi-region brands across a broad geographic footprint. It also provides P&G with strong health care commercial and supply capabilities, deep technical mastery and proven consumer health care leadership that will complement P&G's OTC capabilities and brands such as Vicks, Metamucil and Pepto-Bismol.
The Merck KGaA Consumer Health acquisition replaces and improves upon the highly successful PGT Healthcare joint venture P&G had with Teva Pharmaceutical Industries (NYSE: TEVA), which will be terminated July 1, 2018, pending regulatory approvals.
P&G’s OTC JV with Teva delivered disproportionate top and bottom-line growth and established a major presence in over 50 countries since its formation. However, following a recent review, Teva and P&G
concluded that their priorities and strategies were no longer aligned and agreed terms where it would be mutually beneficial to terminate the joint venture. PGT product assets will return to the original parent company to reestablish independent OTC businesses.
P&G’s acquisition of Merck KGaA Consumer Health will improve P&G’s OTC geographic scale, brand portfolio and category footprint in the vast majority of the world’s top 15 OTC markets.
Merck’s $1 Billion Consumer Health business has been growing at a mid-to-high single digit pace.
It provides a broad range of OTC products for the self-treatment of minor ailments and offers remedies for relieving muscle, joint and back pain, colds and headaches as well as products for supporting physical activity and mobility. Top brands include Neurobion, Dolo-Neurobion, Femibion, Nasivin, Bion3, Seven Seas and Kytta, along with many others. These are sold primarily in Europe, Latin America and Asia.
P&G said the acquisition is subject to customary antitrust reviews and approvals. Assuming no issues arise, the transaction is expected to be completed in fiscal year 2019.

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 and expects to be at the low end of this range. The Company estimates all-in sales growth of approximately three percent for fiscal 2018, which includes a net benefit from the combination of acquisitions and divestitures and foreign exchange.
The Company is raising its fiscal year 2018 guidance for Core EPS growth from a range of five to eight percent to a range of six to eight percent versus fiscal 2017 Core EPS of $3.92. P&G said GAAP earnings per share are expected to decrease 31% to 33% 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 $0.14 per share of non-core restructuring costs and $0.25 per share of non-core charges related to the Tax Act.
P&G also raised its outlook for adjusted free cash flow productivity from 90 percent to approximately 95 percent for the fiscal year.

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 etc. etc..
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