Procter & Gamble Company (The) (PG)

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The Procter & Gamble Company (PG)

Barclays Back to School Conference Transcript

September 4, 2013 9:00 AM ET


Jon Moeller - Chief Financial Officer

A.G. Lafley - Chief Executive Officer


Lauren Lieberman - Barclays



I’d like to remind you that today’s presentation includes a number of forward-looking statements. If you will refer to P&G’s most recent 10-K, 10-Q and 8-K reports you will see a discussion of factors that could cause the company's actual results to differ materially from these projections.

Also as required by Regulation G, Procter & Gamble needs to make you aware that during the presentation the company will make a number of references to non-GAAP and other financial measures. For completeness, Procter & Gamble has posted on its website a copy of the key slides from this presentation and a full reconciliation of non-GAAP and other financial measures.

Lauren Lieberman - Barclays

I’m not done. I have to clarify on that. Given the size of many of P&G’s businesses and the many years of insufficiency for some, we understand it will take time for revenue turnaround to take hold. However, we do think P&G is on the right track by aiming diagnose and solve the challenges that its biggest businesses face, both those that are self-inflicted and those that are results to changes in the marketplace and in terms of consumer behavior.

Of course, it’s wonderful to have Jon Moeller with us again this year, the company’s CFO, but we are also particularly grateful to have CEO, A.G. Lafley with us this morning for his first presentation since returning to the company earlier summer. Jon, thanks again.

Jon Moeller

Thanks, Lauren. I’m going to start this morning with the brief review of our recent results and outlook. A.G. will then discuss our key strategies and focus areas going forward. Along the way we’ll try to address the few of the most frequently asked questions we’ve been receiving since our earnings call last month.

As we outlined in our earnings call last fiscal year, we meet or exceeded our commitments on each key measure, organic sales growth was 3%, the midpoint of our initial guidance range of 2% to 4%. We began to restore growth in the core U.S. market that represents over a third of P&G sales and an even greater percentage of profit.

U.S. fourth quarter organic sales grew at 7% on volume growth of 5%. We maintained goods developing market momentum, organic sales growth in our top 10 developing markets was up 8% in the fiscal year and currently we grew profit meaningly ahead of sales in developing markets, while increasing investments in those markets year-on-year.

We stabilized global market share and ended the year with modest market share growth. P&G global value share was over 20% for the June quarter, up slightly versus prior year on the mix adjusted basis.

We held or grew market share in businesses representing more than 60% of sales in the June quarter, nearly doubled the level compared to the same period last. And in the U.S. we held or grew value share in businesses representing over 70% of sales.

We grew core earnings per share 5% above our initial minus 1 to plus 4% guidance range. We did this while absorbing the Venezuela Bolívar devaluation impact and significant overall dollar strengthening. We also increased marketing investments as the year progressed.

We continue to make good progress on our productivity plan. We delivered over $1.2 billion in cost of good savings and improved manufacturing productivity by 7% versus a target of 5%. Through June, we reduced non-manufacturing enrollment by 7,000 roles. This is 1,300 role reductions ahead of our initial commitment for June, giving us good head starts on the 2% to 4% reduction we are planning for fiscal 2014.

A progress on working capital productivity yielded 98% adjusted free cash flow productivity, ahead of our 90% target. We returned $12.5 billion to shareholders, 110% of net earnings through a combination of $6.5 billion in dividends, reflecting a 7% dividend increase and $6 billion in share repurchase.

Our fiscal 2014 presents several opportunities and some challenges. Tailwinds include positive market share momentum, a number of new and important innovations and savings from productivity improvements. Headwinds include weaker underlying market growth, currency and a rapidly developing policy environment.

We are currently forecasting organic sales growth of 3% to 4%, which compares to project market growth of about 3.5% and we’ll put us ahead of fiscal year ’13 growth. Currency is expected to be a sales growth headwind of about 2 points, which leaves all-in sales growth in the range of 1% to 2% for fiscal 2014.

Moving to the bottom line, our current forecast is for core earnings per share growth of 5% to 7%, equal to prior year growth at the low end of the range and within our long-term annual target at the high end of the range.

And on all-in GAAP basis we expect earnings per share to grow approximately 7% to 9%. This range reflects somewhat lower non-core restructuring costs in fiscal 2014 versus the prior year.

As you think about earnings progress throughout year are several headwinds that will impact first half earnings growth, which will dissipate in the second half. Foreign exchange will be a significant headwind in the first half, which should moderate in the second half.

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