P&G Reports 8% Net Sales and 22% EPS Growth in the Fourth Quarter

Announces $24 - $30 Billion Share Repurchase Program; Confirms Fiscal 2008 EPS Guidance

CINCINNATI, Aug. 3 /PRNewswire-FirstCall/ -- The Procter & Gamble Company (NYSE: PG) announced net sales growth of eight percent for the April - June quarter to $19.3 billion and 12 percent growth for the fiscal year to $76.5 billion. Diluted net earnings per share increased 22 percent for the quarter to $0.67 behind sales growth and a 110-basis point operating margin improvement. For the fiscal year, diluted net earnings per share were up 15 percent to $3.04. The impact of Gillette dilution for the fiscal year was an estimated $0.10 - $0.12 per share, slightly better than the company's expectations primarily due to faster than expected cost synergies. Every segment grew organic sales for the year, led by high-single digit growth in Blades & Razors and Fabric & Home Care and mid-single digit growth in Beauty and Health Care.

The company also announced a significant increase in its share repurchase plans. P&G now plans to repurchase $24 - $30 billion of company shares over the next three years at a rate of $8 - $10 billion per year. This represents a substantial increase versus the company's fiscal 2007 repurchase level of $5.6 billion.

"This marks the sixth consecutive year in which P&G delivered topline growth at or above the company's targets," said Chairman of the Board and Chief Executive A.G. Lafley. "These results were achieved at the same time the organization was integrating Gillette, which is progressing ahead of plan. Our strong cash generation results and our confidence in the business outlook have enabled us to substantially increase our share repurchase commitment for the next three years. I am confident we have the right strategies and capabilities in place and are making the right investment choices to take full advantage of the significant growth opportunities ahead of us."

Executive Summary

Net sales increased eight percent for the quarter to $19.3 billion and 12 percent for the fiscal year to $76.5 billion. Sales growth was broad-based, driven by successful initiatives across key brands and continued double-digit growth in developing regions.

Net earnings were up 19 percent for both the quarter and fiscal year to $2.3 billion and $10.3 billion, respectively. Earnings increased behind sales growth and significant operating margin improvement. Operating margin improved 110-basis points for the quarter and 80-basis points for the fiscal year.

Diluted net earnings per share increased 22 percent for the quarter and 15 percent for the fiscal year to $0.67 and $3.04, respectively. The impact of Gillette dilution for the fiscal year was an estimated $0.10 - $0.12 per share.

For the fiscal year, operating cash flow was $13.4 billion and free cash flow was $10.5 billion. Free cash flow productivity was 101%, above P&G's annual target of 90%. Capital spending was 3.9% of net sales, slightly better than the company's 4% annual target.

April - June Quarter Discussion

Net sales for the quarter increased eight percent to $19.3 billion. Sales growth was led by double-digit increases in Blades & Razors, Fabric & Home Care and Health Care behind successful product initiatives including Gillette Fusion, Tide Simple Pleasures and Crest Pro-Health. Volume increased five percent behind broad-based geographic growth, led by double-digit growth in developing regions. Each segment delivered mid-single digit or higher year- on-year volume growth except Snacks, Coffee and Pet Care, which was impacted by the voluntary recall of certain wet pet foods in March. Foreign exchange contributed three percent to sales growth. Organic sales increased five percent for the quarter.

Net earnings increased 19 percent for the quarter to $2.3 billion. Net earnings were up behind strong sales growth and a 110-basis point operating margin improvement. Diluted net earnings per share increased 22 percent to $0.67.

Gross margin improved by 70-basis points to 50.8% during the quarter. Commodity and energy costs had a negative impact on gross margin of about 40- basis points. Scale leverage from volume growth and cost savings projects more than offset commodity cost increases, driving the year-on-year margin improvement.

Selling, general and administrative expenses (SG&A) were down 40-basis points to 33.2% of net sales due to lower overhead spending as a percentage of net sales. Overhead spending improved due to volume scale leverage, Gillette- related cost synergies and overhead cost control.

Operating cash flow was $3.6 billion during the quarter, an increase of 12 percent versus the base period. Operating cash was driven by strong earnings and an improvement in working capital behind lower inventory days on hand. Free cash flow, defined as operating cash flow less capital expenditures, was $2.6 billion during the quarter and 116% of net earnings. Capital expenditures were 4.9% of net sales during the quarter.

Source : Equity Bulls

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