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The Procter & Gamble Company (PG)
F1Q 2014 Earnings Conference Call
October 25, 2013, 8:30 a.m. ET
Jon Moeller - CFO
John Chevalier - IR
Bill Schmitz – Deutsche Bank Securities
John Faucher – JPMorgan
Dara Mohsenian – Morgan Stanley
Wendy Nicholson – Citigroup
Lauren Lieberman – Barclays
Chris Ferrara - Wells Fargo
Ali Dibadj - Bernstein
Connie Maneaty – BMO Capital Markets
Jason English - Goldman Sachs
Olivia Tong – Bank of America Merrill Lynch
Javier Escalante - Consumer Edge Research
Joe Altobello - Oppenheimer
Bill Chappell - SunTrust Robinson Humphrey
Jon Andersen - William Blair
Mark Astrachan - Stifel Nicolaus
Alice Longley - Buckingham Research
Michael Stieb – Credit Suisse
Caroline Levy - CLSA
Previous Statements by PG
» Procter & Gamble Co. Discusses Q1 2013 Results (Webcast)
» Procter & Gamble's CEO Hosts 2013 Annual Meeting of Shareholders Conference (Transcript)
» The Procter & Gamble's CEO Presents at Barclays Back to School Conference (Transcript)
» Procter & Gamble's CEO Discusses F4Q 2013 Results - Earnings Call Transcript
As required by Regulation G, P&G needs to make you aware that during the call, the company will make a number of references to non-GAAP and other financial measures. Management believes these measures provide investors valuable information on the underlying growth trends of the business.
Organic refers to reported results excluding the impacts of acquisitions and divestitures and foreign exchange, where applicable. Free cash flow represents operating cash flow less capital expenditures and adjusted for after tax impact of major divestitures. Free cash flow productivity is the ratio of adjusted free cash flow to net earnings.
Any measure described as core refers to the equivalent GAAP measure, adjusted for certain items. P&G has posted on its website, www.pg.com, a full reconciliation of non-GAAP and other financial measures.
Now, I will turn the call over to P&G’s Chief Financial Officer Jon Moeller.
Thanks, and good morning. Before we get to results, I want to start with a few housekeeping items. Consistent with our emphasis on productivity, as well as our focus on annual versus quarterly planning periods, A.G. Lafley and I have decided to apportion our efforts on P&G investor communications as follows.
A.G. will lead our fiscal year end call, providing perspective on the year we’ve just completed and outlining our priorities for the new fiscal year. A.G. will represent P&G at our most significant each year. This year those will be the Barclays Back to School conference and CAGNY. And he will lead the annual shareholders meeting each October.
I’ll head up the non year-end quarterly calls and the remaining investor conferences. We will both continue to meet on a one-on-one basis with current and potential investors. We’ll continue to involve other key executives in investor meetings and conferences, as we have in the past.
Our objective is to provide shareholders the information they want and need in a more productive manner that is consistent with our business planning approach. One last announcement, John Chevalier, who heads up our investor relations practice, will now report directly to me. John was previously reporting to our treasurer, Teri List, who is now at Kraft Foods. John joins me on the call this morning.
Let me move now to our first quarter results. All-in sales grew 2%, including the 2-point headwind from foreign exchange. Organic sales grew 4%, putting us on track to deliver 3% to 4% organic sales growth for the fiscal year. Organic sales growth was driven by strong organic volume growth of 4%. Pricing and mix were both neutral to sales growth for the period.
Organic sales were in line or ahead of a year ago in all reporting segments. Organic sales were up low single digits in developed markets and high single-digits in developing markets. P&G global value market share was around 20% for the most recent 3-month period. We held or grew global market share in businesses representing about two-thirds of global sales.
Moving to the bottom line, all-in earnings per share were $1.04. This includes $0.02 of noncore restructuring costs. Core earnings per share were $1.05, down $0.01 versus the prior year. Foreign exchange was a $0.09 per share headwind. On a currency neutral basis, core earnings per share was up 8% for the quarter.
Core operating profit margin declined 70 basis points as solid organic sales growth and 200 basis points of cost savings were offset by foreign exchange and gross margin mix impacts.
Core gross margin was down 130 basis points. Strong cost savings of 160 basis points and volume leverage was more than offset by geographic and category mix of 140 basis points, foreign exchange of 80 basis points, higher commodity costs, and higher manufacturing startup costs versus the prior year.
Core SG&A costs decreased 60 basis points, driven by overhead cost savings of 40 basis points, marketing spending efficiencies, and volume leverage. These benefits were partially offset by foreign exchange, general wage inflation, and reinvestments in innovation and go-to-market capability.
The effective tax rate for the quarter was 23.8%. The combined impact from tax, interest expense, interest income, non-operating income, and outstanding share count was essentially neutral to core earnings per share growth.
We generated $1.3 billion in free cash flow in the quarter, repurchased $2.5 billion in stock, and returned $1.7 billion of cash to shareholders as dividends. Free cash flow was reduced by a discretionary cash contribution of nearly $1 billion to our German defined benefit pension fund. This is reflected in the change in other operating assets and liabilities line on the cash flow statement.