Net Sales +5%; Organic Sales +5%; Diluted Net EPS $1.41, +16%; Core EPS $1.42, +14%
RAISES SALES, EARNINGS, ADJUSTED FREE CASH FLOW PRODUCTIVITY AND CASH RETURN GUIDANCE.
CINCINNATI--(BUSINESS WIRE)--The Procter & Gamble Company (NYSE:PG) reported second quarter fiscal year 2020 net sales of $18.2 billion, an increase of five percent versus the prior year. Excluding the net impacts of foreign exchange, acquisitions and divestitures, organic sales also increased five percent. Diluted net earnings per share were $1.41, up 16% versus the prior year. Core earnings per share increased 14% to $1.42. Currency-neutral core EPS increased 15% versus the prior year.
Operating cash flow was $4.4 billion for the quarter. Free cash flow productivity was 100%. The Company returned $5.4 billion of cash to shareholders through $1.9 billion in dividend payments and $3.5 billion of common stock repurchases.
“We delivered another strong quarter of organic sales growth, core earnings per share and cash returned to shareowners,” said David Taylor, Chairman, President and Chief Executive Officer. “Our strong first half results enable us to further increase our outlook for the full fiscal year across each of these metrics and to increase our commitment of cash return to shareowners. Our focus remains on executing our strategies of superiority, productivity, constructive disruption and improving P&G’s organization and culture to deliver balanced top-line and bottom-line growth along with strong cash generation in a challenging competitive and macroeconomic environment.”
October - December Quarter Discussion
Net sales in the second quarter of fiscal year 2020 were $18.2 billion, up five percent versus the prior year. Unfavorable foreign exchange negatively impacted sales by one percentage point for the quarter. Excluding the net impacts of foreign exchange, acquisitions and divestitures, organic sales also increased five percent driven by a three percent increase in organic shipment volume. Increased pricing contributed one percent to net sales. Positive mix was a one percent help to net sales driven by the disproportionate organic growth of the Health Care segment and the Skin and Personal Care category, both of which have higher than Company average selling prices.
• Beauty segment organic sales increased eight percent versus year ago. Skin and Personal Care organic sales increased double digits driven by premium innovation and increased pricing. Hair Care organic sales increased mid-single digits driven by premium innovation, positive mix impact from the disproportionate growth of premium products and devaluation-driven price increases.
• Grooming segment organic sales increased four percent versus year ago. Shave Care organic sales increased low single digits driven by innovation and devaluation-driven price increases partially offset by related unit volume declines in certain markets and competitive activity. Appliances organic sales increased high single digits driven by innovation and positive mix impact from the disproportionate growth of premium products.
• Health Care segment organic sales increased seven percent. Oral Care organic sales increased mid-single digits due to innovation and positive mix in the premium toothpaste and toothbrush segments. Personal Health Care organic sales increased high single digits primarily due to innovation, increased marketing spending, increased pricing and positive mix due to strong growth in North America Respiratory category, which has higher than average selling prices. Personal Health Care all-in sales increased over 30% versus the base period with the addition of the Merck OTC business.
• 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 positive mix driven by the disproportionate growth of premium products, partially offset by retailer inventory decreases in Japan following the build-up in advance of the October VAT increase. Home Care organic sales increased high single digits driven by innovation, increased pricing and positive mix due to the disproportionate growth of premium products.
• Baby, Feminine and Family Care segment organic sales increased one percent versus year ago. Baby Care organic sales decreased low single digits due to competitive activity, category contraction in certain markets and retailer inventory decrease in Japan following the October VAT increase, partially offset by positive mix due to premium innovation. Feminine Care organic sales increased mid-single digits driven by innovation, increased marketing spending and positive product mix resulting from the disproportionate growth of premium products. Family Care organic sales increased low single digits due to innovation and increased pricing, partially offset by unfavorable mix impact due to the disproportionate growth of large sizes.
Diluted net earnings per share were $1.41, a 16% increase versus the prior year, driven primarily by the increase in net sales and an increase in operating margin. Core earnings per share were $1.42, a 14% increase versus the prior year, due to lower non-core restructuring charges versus the prior year. Currency-neutral core earnings per share increased 15% for the quarter.
Reported gross margin increased 250 basis points, including 50 basis points of lower non-core restructuring charges versus the prior year. Core gross margin increased approximately 200 basis points versus the prior year, including 10 basis points of negative foreign exchange impacts. On a currency-neutral basis, core gross margin increased approximately 210 basis points driven by 120 basis points of productivity savings, 40 basis points of pricing benefit, 70 basis points from commodity cost decreases and 20 basis points help from other items, partially offset by 40 basis points of unfavorable product mix.
Selling, general and administrative expense (SG&A) as a percentage of sales increased 30 basis points on a reported basis versus the prior year, including a 10 basis-point hurt from a year-on-year increase in non-core restructuring charges. Core and currency-neutral core SG&A as a percentage of sales increased 20 basis points versus the prior year as 120 basis points of sales leverage benefit and 100 basis points of savings from overhead and marketing expenses were more than offset by 150 basis points of increased marketing investments and 90 basis points of inflation, increased digital investments, incentive compensation costs and other impacts.
Operating profit margin increased 230 basis points versus the base period on a reported basis including approximately 40 basis points help from lower non-core restructuring charges. Core and currency-neutral core operating margin increased 190 basis points including total productivity cost savings of 220 basis points. Foreign exchange was neutral to operating margin for the quarter.
Fiscal Year 2020 Guidance
The Company raised its outlook for fiscal 2020 all-in sales growth from a range of three to five percent to a range of four to five percent growth versus the prior fiscal year. This estimate includes a modest negative impact from foreign exchange, largely offset by a modest positive impact from acquisitions and divestitures. The Company increased its guidance for organic sales growth from a range of three to five percent to a range of four to five percent.
The Company increased its guidance range for fiscal 2020 all-in GAAP diluted net earnings per share growth to 235% to 245%, noting that the comparison period is significantly depressed by the Gillette Shave Care impairment charges in fiscal 2019. P&G raised its fiscal 2020 guidance for core earnings per share growth from a range of five to ten percent to a range of eight to eleven percent versus fiscal 2019.
The Company is not able to reconcile its forward-looking non-GAAP adjusted free cash flow productivity measure without unreasonable efforts because the Company cannot predict the timing and amounts of discrete cash items, such as acquisitions, divestitures, or impairments, which could significantly impact GAAP results. The Company increased its estimate for fiscal 2020 adjusted free cash flow productivity from 95% to 100%.
The Company now expects to pay over $7.5 billion in dividends and repurchase $7 billion to $8 billion of common shares in fiscal 2020. This compares to prior guidance of over $7.5 billion in dividends and $6 billion to $8 billion of common share repurchases.
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, except to the extent required by law.
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
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