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Original Source: FD (FAIR DISCLOSURE) WIRE
. Clayt Daley, Procter & Gamble Corp., CFO . John Goodwin, Procter & Gamble Corp., Treasurer . Bill Pecoriello, Morgan Stanley, Analyst
. A.G. Lafley, Procter & Gamble Corp., Chairman, President, CEO . Lauren Lieberman, Lehman Brothers, Analyst . Amy Chasen, Goldman Sachs, Analyst . Bill Schmitz, Deutsche Bank, Analyst . Nik Modi, UBS Warburg, Analyst . Wendy Nicholson, Citigroup, Analyst . April Scee, Banc of America Securities, Analyst . John Faucher, JPMorgan, Analyst . Chris Ferrara, Merrill Lynch, Analyst . Alice Longley, Buckingham Research Group, Analyst . Justin Hott, Bear Stearns, Analyst
. Jason Gere, A.G. Edwards & Sons, Analyst . Elena Mills, Atlantic Equities, Analyst . Connie Maneaty, Prudential Equity Group, Analyst
. Joe Altobello, CIBC World Markets, Analyst . Bill Chappell, SunTrust Robinson Humphrey, Analyst . Linda Bolton-Weiser, Oppenheimer & Co., Analyst . Sandhya Beebee, HSBC, Analyst . James Baker, Neuberger Berman, Analyst
The Co. reported 1Q07 total sales of $18.8b and diluted net EPS (includes Gillette dilution of $0.05-0.06 per share) of $0.79. PG expects 2Q07 EPS to be $0.81-0.83 and FY07 EPS to be $2.97-3.02.
A. Key Data From Call 1. 1Q07 total sales = $18.8b. 2. 1Q07 operating income = $4.1b. 3. 1Q07 diluted net EPS = $0.79 (includes Gillette dilution of $0.05-0.06 per share). 4. 1Q07 GM = 52.8%. 5. 1Q07 CapEx = 3% of sales. 6. 1Q07 stock repurchase = $1.4b of PG stock (includes the completion of the Gillette buyback program in July and the resumption of PG's discretionary share repurchases).
7. FY07 EPS guidance = $2.97-3.02. 8. 2Q07 EPS guidance = $0.81-0.83.
S1. 1Q07 Financial Review (C.D.) 1. 1Q07 Results: 1. Delivered balanced top and bottom line growth, driven by a healthy innovation program, strong operating margin improvement, and good progress on the Gillette integration. 2. Diluted net EPS was $0.79, up 3% vs. 1Q06 and $0.01 ahead of the consensus estimate. 1. This included Gillette dilution of $0.05-0.06 per share, at the low end of the previous guidance range. 2. Excluding this dilution, EPS was up 9-10% vs. 1Q06. 3. Sales: 1. Total sales increased 27% to $18.8b. 1. This was at the top end of the guidance range, driven by better-than-expected results on the Gillette business. 2. Sales on Blades and Razors were up 12% vs. 1Q06, due to a strong global consumption growth and better-than-expected customer sell-in behind the Fusion launch in the UK, Germany and Japan. 3. Organic sales growth came in at 6%, driven by a robust innovation program. 1. This was at the top end of the long-term organic growth target range of 4-6%. 2. Recent innovations, such as Crest Pro Health toothpaste,
Olay Definity, Tide Simple Pleasures, and the Herbal Essences brand restage, are all off to a strong start. 4. Earnings & Margin Performance: 1. Operating income was up 33% to $4.1b, due to strong results on PG's base business and the addition of Gillette.
2. The operating margin was up 90 bp vs. 1Q06, driven by significantly better GM. 3. GM was up 120 bp to 52.8%. 1. Higher commodity costs hurt base PG GM by about 100 bp in 1Q07. 4. Volume leverage, cost-savings efforts and pricing offset the commodity cost impact, while the mix benefit from the addition of Gillette drove margin expansion. 5. SG&A expenses increased by 30 bp behind Gillette-related acquisition costs, as expected. 5. Share Repurchase:
1. Repurchased $1.4b of PG stock during 1Q07. 1. This included the completion of the Gillette buyback program in July and the resumption of PG's discretionary share repurchases, which it expects to continue going forward. 6. Tax Rate: 1. Came in at 30.4%, about in line with 1Q06. 2. Continues to expect that the tax rate for FY07 will be at or slightly below 30%, in line with previous guidance. 7. As expected non-operating income increased due to higher interest income and the planned divestitures of Pert and Sure. 1. The increase was in line with previous guidance.
8. EPS included $0.03 of one-time charges related to the Gillette
acquisition, also in line with previous guidance. 9. Cash Performance: 1. Operating cash flow was $3b, up about $800m from 1Q06. 1. The improvement was driven by the addition of Gillette and
earnings growth from the PG base business. 2. Working capital was about neutral to cash vs. 1Q06. 3. Receivables increased by three days due to the mix impacts of adding Gillette and strong Fusion pipeline shipments late in the quarter. 4. Inventory days increased due to the mix impact of adding Gillette and inventory builds in preparation for the upcoming Fusion launches in continental Europe. 5. Excluding Gillette, inventory days were down modestly vs. 1Q06 despite inventory builds in support of PG's strong innovation program. 6. Cash generated from payables offset the increases in receivables and inventories. 7. Free cash flow was $2.4b.
8. CapEx was 3% of sales. 9. Free cash flow productivity came in at 88%, slightly ahead of 1Q06. 2. Summary: 1. PG continues to drive balanced top and bottom-line growth. 2. Growth strategies are working, and PG continues to benefit from its balanced portfolio and robust innovation program.
S2. 1Q07 Business Unit Results by Segment (J.G.) 1. Beauty Business:
1. Sales were up 11% behind strong organic growth and the
addition of Gillette. 1. Skin Care, Feminine Care and retail Hair Care lead the organic growth. 2. In Hair Care, Pantene, Head & Shoulders and Herbal Essences all grew global volume high single digits, all greater, behind strong initiatives on each brand. 3. In total, PG past three-month value share of the US shampoo market is up more than 1 point to 40% despite a high level of competitive products activity. 4. The Skin Care business grew double digits, despite the temporary voluntary suspension of SK-II shipments in China. 5. PG has recently received [complication] on SK-II product safety in China, and expects to re-enter the market in the next few weeks. 6. Within Skin Care, Olay volume grew mid-teens globally with the continued expansion of the Regenerist line and over 20% growth in the US behind the launch of Olay Definity. 7. Olay past three-month value share of the US facial moisturizers market is up nearly 6 points vs. 1Q06 to over 41%. 8. Fem Care also grew volume high single digits globally. 1. Always continues to deliver strong market share gains behind the Clean and Fresh initiatives. 9. Value share in the US is now 54%, up nearly 2 points vs. 1Q06. 10. Tampax share is also up more than 1 point in the US to 51%,
behind the continued growth of Tampax Pearl. 1. Tampax has widened its market share lead in the tampon category, and Pearl is now the leader in the plastic applicator segments. 2. Health Care:
1. Reported sales were up 32%, driven mainly by the addition of
the Oral-B business. 2. Organic sales were up 4% vs. a strong base period for both the Prilosec OTC and Actonel brands.
3. In Oral Care, organic sales grew double digits globally behind
strength in the North America and Europe, Middle East, Africa
regions. 4. In the US, Crest delivered strong results behind the Pro Health toothpaste launch. 5. Crest unit volume was up double digits in the US, and past three-month all-outlet value share in toothpaste was up 2 points to 36%. 3. Household Businesses: 1. Fabric Care and Home Care: 1. Delivered strong quarter with 9% sales growth. 2. Both businesses grew volume high single digits, driven by strong innovation results. 3. Key initiatives driving the topline were Tide Simple Pleasures, Gain Joyful Expressions, Febreze Noticeables, several Swiffer upgrades, and the Fairy auto-dishwashing launch in Western Europe. 4. Tide and Gain each grew value share in the US laundry market by more than 1 point, and total PG value share of the US laundry market is up nearly 2 points to over 61%. 5. PG is currently in the process of resetting the laundry detergent shelves in Cedar Rapids, Iowa, to begin its two times [compaction] test market. 1. This is a full line replacement of PG's current liquid detergents with concentrated formulas across all of its brands (Tide, Gain, Cheer, Era and Dreft). 2. All major retailers are participating in the test, and PG understands that all major manufacturers will also be participating. 6. Febreze share of the US air care market is up almost 5 points to nearly 25%. 1. This includes over 80% share of the Fabric Spray segment and 18% of the instant air freshener sprays. 7. Swiffer's share of US cleaning systems is now over 84%, up nearly 6 points vs. last year behind a steady stream of product improvements across the franchise. 2. Baby Care and Family Care: 1. The businesses delivered a good quarter with sales growth of 5% and earnings growth of 20%. 2. Family Care growth was driven mainly by the continued
expansion of Charmin and Bounty Basic. 3. The business …