CINCINNATI--(BUSINESS WIRE)--The Procter & Gamble Company (NYSE:PG) delivered four percent sales growth to $22.1 billion for the October – December quarter. Growth was driven by higher volume and pricing actions, partially offset by geographic and product mix. The Company continued to deliver broad-based organic sales growth, with all six business segments up versus the prior year. Diluted net earnings per share were $0.57 per share, reflecting non-core charges of $0.53 per share. The non-core items included a $0.50 per share non-cash impairment charge associated with the Appliances and Salon Professional businesses. Core net earnings per share were $1.10, toward the high end of the Company’s expectations for the quarter.

“We continue to make progress against our key business priorities in a difficult macroeconomic environment,” said Chairman of the Board, President and Chief Executive Officer Bob McDonald. “We delivered solid top-line growth and continued to accelerate productivity improvements to drive down costs. With the easing of commodity cost comparisons over the next two quarters, continued solid top-line growth and cost savings progress, we expect operating profit growth to accelerate in the second half of the fiscal year.”

Executive Summary

Net sales and organic sales increased four percent for the quarter. Organic sales growth was broad-based, with all six business segments growing for the second consecutive quarter. Core net earnings per share decreased three percent to $1.10. The benefits from solid sales growth and cost savings were more than offset by higher commodity costs. Diluted net earnings per share were $0.57 per share, down 49 percent primarily due to non-core charges of $0.53 per share. The non-core charges included a one-time $0.50 per share non-cash impairment charge associated with the Appliances and Salon Professional businesses. Operating cash flow was $3.3 billion for the quarter. October - December Quarter Discussion

Net sales increased four percent to $22.1 billion in the October - December quarter. Organic sales also grew four percent. Volume increased one percent behind overall market growth, initiatives and continued market expansions. Volume grew at high single-digit rates in developing regions. This growth was partially offset by a mid-single-digit decrease in developed regions. Broad-based price increases across all segments and geographies, designed to recover higher commodity costs and devaluing developing market currencies, increased net sales by four percent. Geographic and product mix reduced net sales by one percent.

Diluted net earnings per share were $0.57, a decrease of 49 percent primarily due to non-core charges of $0.53 per share which include a $0.50 per share non-cash impairment charge. Gross margin contracted 210 basis points due mainly to higher commodity costs, partially offset by pricing and manufacturing cost savings. Selling, general and administrative expenses (SG&A) as a percentage of net sales improved 150 basis points behind net sales leverage, a reduction in overhead spending and lower charges for non-core items. Including the impact of non-core items, operating margin declined 760 basis points.

Excluding the non-core items, core net earnings per share were $1.10, and core operating margin declined 160 basis points.

Operating cash flow was $3.3 billion for the quarter and free cash flow was $2.4 billion. The Company repurchased $0.5 billion of shares during the quarter and returned $1.5 billion of cash to shareholders as dividends.

Goodwill and Intangibles Impairment

During the quarter, the Company took a non-cash charge of $1.5 billion after tax, or $0.50 per share, to adjust the carrying values of goodwill in the Appliances and Salon Professional businesses, and trade name intangible assets in the Salon Professional business. The impairments were primarily driven by the prolonged deterioration of the macroeconomic environment, the more discretionary nature of the products, and increasing levels of competitive activity. Together, these factors have led to a reduction in expected market size and growth rates for both businesses. This is particularly the case in the Western Europe market, where roughly 50 percent of P&G’s Appliances and Salon Professional sales are generated. As a result of these factors, the Company recently has reduced the sales, earnings and cash flow forecasts for these businesses.

Business Segment Discussion

Beauty net sales increased one percent to $5.4 billion on unit volume growth of one percent. Organic sales grew two percent on two percent organic volume growth. Price increases added three percent to net sales growth. Mix reduced net sales by four percent due to disproportionate growth in developing regions, which have lower than segment average selling prices, and a decrease in the premium-priced product categories. Favorable foreign exchange increased net sales by one percent. Volume grew high single digits in developing markets and decreased mid-single digits in developed regions. Volume in Hair Care increased mid-single digits behind high-single-digit growth in developing regions due to product innovation activity and distribution expansions in Asia, while developed regions decreased mid-single digits. Volume in Skin Care, Personal Care and Cosmetics decreased low single digits due to the Zest and Infasil divestitures, Olay share loss in developed markets and the volume impact of price increases due to consumer value differences relative to competitive products in North America. Volume in Salon Professional declined high single digits due to market contraction in Europe, distribution share losses and non-strategic brand discontinuations. Volume in Prestige Products decreased low single digits driven by minor brand divestitures and a strong initiative base in the prior year, offset by current year market growth and initiatives for SK-II. Net earnings declined eight percent to $802 million as higher commodity costs more than offset the impact of sales growth. Grooming net sales increased one percent to $2.2 billion. Unit volume increased one percent. Organic sales were up two percent. Price increases added two percent to net sales growth, while unfavorable product mix decreased net sales by two percent mainly due to a reduction in premium appliances, which have higher than segment average selling prices. Volume grew high single digits in developing regions and decreased mid-single digits in developed regions. Shave Care volume grew low single digits due to high single-digit growth in developing regions behind product and commercial innovation, Fusion ProGlide geographic expansion and market growth, partially offset by a mid-single-digit decrease in developed regions due to market contraction and competitive activity. Volume in Appliances decreased double digits primarily due to a decrease in Western Europe as markets contracted and competitive activity increased. Net earnings increased two percent to $517 million, largely consistent with net sales growth. The decline in gross margin due to unfavorable geographic and product mix was offset by lower SG&A. Health Care net sales and organic sales increased one percent to $3.2 billion on unit volume that was in line with the prior year period. Pricing increased net sales by three percent. Unfavorable product and geographic mix reduced net sales by two percent. Volume increased low single digits in developing regions and decreased low single digits in developed regions. Oral Care volume decreased low single digits due to a strong initiative base period in North America and current competitive activity. Volume in Feminine Care grew low single digits driven by mid-single digit growth in developing markets due to a new distributor start-up in CEEMEA and market growth and product innovation in India, partially offset by a mid-single digit decrease in developed regions due to competitive activity, primarily in North America. Personal Health Care volume increased mid-single digits primarily due to the addition of the Teva partnership, with organic volume increasing low single digits behind market growth and Vicks product innovation, partially offset by lower shipments of Prilosec OTC in North America. Net earnings increased one percent to $537 million, consistent with sales growth, as reduced gross margins were offset by lower SG&A as a percentage of net sales. Snacks and Pet Care net sales and organic sales increased three percent to $824 million on a two percent increase in unit volume. Pricing increased net sales by three percent. Mix reduced net sales by two percent due to unfavorable product and geographic mix. Snacks volume increased mid-single digits mainly due to increased distribution and market growth in developing regions. Pet Care volume decreased low single digits due to customer inventory adjustments and market contraction. Net earnings decreased nine percent to $61 million as operating margin contraction and a higher effective tax rate more than offset net sales growth. Operating margin decreased primarily due to a decline in gross margin, partially offset by a decrease in overhead spending as a percentage of net sales. Gross margin decreased behind an increase in commodities, partially offset by price increases and manufacturing cost savings. Fabric Care and Home Care net sales and organic sales increased five percent to $6.6 billion behind six points of increased pricing. Mix reduced net sales by one percent due to unfavorable product and geographic mix. Unit volume was in line with the prior year period. Volume increased high single digits in developing regions, offset by a low single digit decrease in developed regions. Fabric Care volume was in line with the prior year as a mid-single digit increase in developing regions, driven by new innovation and market growth, was offset by a mid-single digit decrease in developed regions due to competitive activity and the impact of price increases taken in the previous quarters. Home Care volume increased low single digits driven by initiative activity and distribution expansion in developing regions. Batteries volume decreased low single digits due to market contraction and distribution losses in developed markets, partially offset by market growth and distribution expansion in developing regions. Net earnings declined five percent to $717 million as sales growth was more than offset by operating margin contraction. Operating margin declined primarily due to lower gross margin, as higher commodity costs were only partially offset by price increases and manufacturing cost savings. Baby Care and Family Care net sales and organic sales increased six percent to $4.2 billion driven by six points of increased pricing. Unit volume was in line with the prior year period. Volume in developing regions increased double digits, while volume in developed regions decreased mid-single digits. Volume in Baby Care increased mid-single digits behind market size growth, innovation across the portfolio, and distribution expansion in developing regions, partially offset by market contraction in developed regions. Volume in Family Care decreased mid-single digits primarily due to consumer value differences relative to competitive products in North America. Net earnings increased three percent to $516 million as sales growth was partially offset by lower operating margin. Operating margin contracted mainly due to a lower gross margin, driven by higher commodity costs, partially offset by price increases and manufacturing cost savings. Fiscal Year 2012 Guidance

Net sales are expected to increase three to four percent in fiscal 2012. Organic sales are expected to increase four to five percent. Foreign exchange is expected to reduce net sales by one percent for the year. Pricing is expected to add four percent to sales while unfavorable product and geographic mix is expected to reduce sales by one to two percent. Diluted net earnings per share is expected to be in the range of $3.85 to $4.08 and Core EPS in the range of $4.00 to $4.10, up one to four percent versus a base period Core EPS of $3.95. The Company’s prior guidance range for Core EPS was $4.15 to $4.33. The change in the Core EPS range is primarily due to foreign exchange, which has negatively impacted earnings per share by $0.15 to $0.18 since the estimates established at the beginning of the fiscal year.

January - March 2012 Quarter Guidance

For the January - March quarter, net sales growth is estimated to be in line with year ago to up two percent. Organic sales are expected to grow three to five percent, with continued benefit from pricing. Foreign exchange is expected to reduce net sales by three percent. Diluted net earnings per share are expected to be in the range of $0.81 to $0.87, with Core EPS in the range of $0.91 to $0.97, down five percent to up one percent versus a base period Core EPS of $0.96. Third quarter net earnings will continue to be negatively affected by higher commodity costs versus prior year levels. In addition, the Company noted that it expects the effective tax rate will be significantly higher than in the comparison period, which will reduce Core EPS growth by approximately seven percent.

Fiscal Year 2012 Second Half Perspective

P&G provided additional perspective on the improved results expected in the second half of the fiscal year. The Company said it expects net sales growth to be in-line with year ago to up two percent. Organic sales growth in the range of four percent to five percent driven primarily by continued strong growth in developing markets. Foreign exchange is expected to reduce net sales by three to four percent.

The Company added that it expects sequential improvement in core operating profit in the third and fourth quarters as the benefits from pricing increase and commodity cost comparisons continue to ease. P&G said it expects double-digit growth in core operating profit for the second-half of the fiscal year.

Core earnings per share growth rates will be driven by the strong operating profit growth, but will be partially offset by a significant increase in the effective tax rate. The Company’s new guidance translates to four percent to nine percent core EPS growth in the second half of the fiscal year, which includes an approximate six percentage point negative impact on core EPS growth from the higher tax rate.