Cincinnati-based consumer goods giant P&G delivered double-digit volume and core earnings per share growth for the January-March quarter, ended 31 March, exceeding Wall Street consensus estimates.
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For the Q3, unit volume grew 10% versus the prior year behind double-digit growth in the health care and beauty care businesses and strong progress in fabric and home care. Excluding acquisitions and divestitures, unit volumes increased 6%. Reported net sales were US$9.9bn, up 7% versus the year-ago period excluding a 3% negative foreign exchange impact, as pricing and mix effects partially offset volume growth.
“Last quarter’s results were strong across core businesses, leading brands and top countries. P&G is solidly back on track,” said P&G president and CEO A. G. Lafley. “To sustain stronger results long-term, we must continue to focus on consumer value, innovation leadership, outstanding brand marketing and disciplined cash and cost management.”
Q3 net earnings were US$1.04bn or US$0.74 per share. Results included a US$147m after-tax restructuring charge related to the streamlining of operations and business portfolio. This restructuring charge included employee separation costs of US$51m before tax and asset-related charges of US$83m before tax. Net earnings in the year-ago Q3 were US$893m, including a US$113m after-tax restructuring charge.
Core net earnings growth was very strong, the company said, increasing 12% to US$0.84 per share or US$1.19bn for the Q3. Core results exclude restructuring charges, as well as an adjustment to the prior year to remove amortisation of goodwill and certain intangibles that is no longer required under the accounting rules. This is the second consecutive quarter with core earnings growth across every business unit and marks a return to total company double-digit earnings growth.
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By GlobalDataKey financial highlights
The company’s cash flow from operations for the first nine months of the year was US$5.4bn, representing a US$1.6bn increase year on year. And year-to-date capital spending was down US$0.7bn, achieving the long-term 6% of sales target several quarters ahead of expectations.
For this nine month period, reported net earnings were US$3.44bn, or US$2.45 per share. Core net earnings were US$3.97bn; core net earnings per share grew 7% to US$2.83, excluding restructuring charges and the prior year amortisation of goodwill and certain intangibles. Net sales were US$30.1bn, up 3%, excluding a 2% negative foreign exchange impact.
Q3 results by business segment
Net earnings in food and beverage increased behind broad-based cost reductions. Unit volume is showing improvement after a slow start to the fiscal year but is down 1%. Sales were US$879m, lower by 5% excluding a 1% negative foreign exchange impact, as Folgers pricing continued to reflect lower green coffee costs. Net earnings grew strongly, up 18% to US$79m.
Fabric and home care saw unit volume increase 6%, driven by growth in the US behind strengthened advertising fundamentals on all fabric care brands. Net sales were US$2.84bn, up 5% excluding a 3% negative foreign exchange impact. Net earnings were US$472m, up 36%, reflecting a continued focus on disciplined cost management. Operating expansion was achieved through lower material prices, improved marketing efficiencies and savings from restructuring activities.
Health care continued to deliver excellent results as unit volume increased 16%. Net sales were US$1.22bn, up 13%, excluding a 2% negative exchange impact. Net earnings were US$124m, up 36% versus last year reflecting volume and sales growth of high margin items, which has funded increased marketing investments.
Beauty care posted strong results, with double-digit volume, sales and earnings growth. Unit volume increased 28%. Excluding the impact of acquisitions and divestitures, volume was up 4% behind strength in hair care. Sales grew 21%, excluding a 3% negative foreign exchange impact, reaching US$2.11bn. Volume growth was partially offset by mix impacts driven by the Clairol business. Excluding acquisitions and divestitures, net sales were up 1% versus year ago due to unfavourable foreign exchange impacts and a comparison to base period that reflected mix benefits from pipeline volume for premium skincare initiatives. Net earnings were US$269m, up 11%.
Baby, feminine and family care achieved solid earnings growth during the Q3 through both volume growth and cost reductions. Unit volume increased 4%. Net sales were US$2.9bn, up 2%, excluding a 3% negative foreign exchange impact. Earnings were US$263m, up 11%, including a non-operating gain from a licensing transaction with an unconsolidated joint venture. Excluding this one-time gain, earnings would have been up 4%, reflecting gross margin improvement from manufacturing projects and commodity price reductions that funded increased marketing investment.
Q4 and next FY estimates
For the Q4, P&G expects volume to be up in the high single digits. Sales, excluding foreign exchange, are expected to be up in the mid-single digits versus year ago. At current rates, foreign exchange would negatively impact sales by 2-3%. The company projects core earnings per share growth in the low teens reflecting strong volume and higher operating margins.
The company will provide full guidance on its 2003 fiscal year in August. Based on preliminary data, however, the company anticipates achieving its long-term sales growth objective of 4-6%. This will likely be toward the low end of the range reflecting the full-year effect of the Crisco/Jif spin merge. Core earnings per share is expected to grow at the company’s target rate of double-digits despite expected adverse movements in interest rates and lower income from minor brand divestitures.
