Procter & Gamble Company (The) (PG)

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The Procter & Gamble Company (PG)

Consumer Analyst Group of New York Conference Call

February 20, 2014; 09:15 a.m. ET

Executives

A.G. Lafley - Chairman, President & Chief Executive Officer

Jon Moeller - Chief Financial Officer

Analysts

Presentation

Operator

P&G would 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 www.pg.com a copy of the key slides from this presentation and the full reconciliation of non-GAAP and other financial measures.

Unidentified Company Representative

I am very pleased to introduce Procter & Gamble’s management team, including A.G. Lafley, Procter’s Chairman, President and CEO, who is no stranger to this conference and his first successful spin as Procter’s CEO, but is here for the first time under a second spin. So we are excited to hear about strategy, tweaks under A.G. as well as Procter’s CFO, Jon Moeller.

Its an interesting time for the company, which is in the middle of an aggressive restructuring program that’s generating cost savings and is looking to accelerate organic sales growth though innovation, as well as a focus on the core.

So I’ll turn things over to you Jon.

Jon Moeller

Hi, good morning everyone. I’m going to start with a quick look back at our results for the most recent quarter. As you know our October to December quarter came in pretty much where we expected. Organic sales grew 3%. Organic sales growth was in line or ahead of year ago in each of our reporting segments. They were up 8% in developing markets and about flat in developed markets.

Core earnings per share were $1.21, down a penny versus the prior year. Earnings for all segments were ahead of year ago, except for Baby, Feminine, and Family Care, due to foreign exchange.

Foreign exchange was an $0.11 per share headwind for the company in the quarter. The year ago period also included a $0.07 per share gain from the sale of our bleach business in Italy. Combined, these two items constitute a 15% core earnings per share growth headwind for the quarter.

We returned $1.7 billion of cash to shareholders in dividends, and repurchased $1.5 billion in stock, bringing year-to-date dividend payments to $3.4 billion and share repurchase to $4 billion.

Over the last 10 years, in both good years and bad years P&G has consistently returned cash to shareholders. We have paid out $47 billion in dividends. Excluding $20 billion of share repurchase associated with the Gillette acquisition, we repurchased $51 billion of stock.

In total, through dividend and share repurchased we returned $98 billion cash or 96% of net earnings to our shareholders. Returning capital to shareholders remains a critical component of our effort to deliver superior shareholder returns.

Before going into the details or updated guidance, I think it will be helpful to put fiscal year 2014 into context. We faced several significant challenges this year. We faced the largest foreign exchange headwind in P&G history, $1.1 billion after tax. (Inaudible) January the foreign exchange headwind has grown by about $230 million after tax.

Global market growth rates have decelerated about a full point in the last two and a half quarters, from around 4% growth last fiscal year to around 3% now. The policy environment has continued to change rapidly from pricing and import controls in some countries, to political unrest that has temporarily disrupted business operations in other countries.

We’ve taken significant steps to offset these challenges. We took and are taking more pricing. However in some markets government policies prevent us from pricing. In other markets like Japan it’s not practical to price, as most of our competition is fully localized and in all markets it takes time to get pricing fully implemented. So pricing can’t be the only answer. That’s why we have been accelerating cost savings.

We targeted a run-rate of $1.2 billion of cost of goods productivity savings per year. We stated this fiscal year expecting $1.4 billion in savings and are now forecasting more than $1.6 billion in productivity savings across materials, logistics and manufacturing. This is $400 million more than our initial target for this fiscal year and we see several years of this level of savings ahead of us. Versus a going-in target of 5%, we expect to improve manufacturing productivity by at least 6% this year. We’re up more than 8% fiscal year-to-date.

By the end of December we’d exceeded our 2014 fiscal year overhead reduction goals, only six months into the year, and it begun work to accelerate role reductions planned for fiscal 2015 into 2014. Our strict objective is to get substantially to our end of 2015 objectives by the end of 2014, which will put us close to or within the 16% to 22% reduction goal we’ve established, one to two years ahead of target.

We continue to drive marketing, productivity and effectiveness through an optimized media mix, with more digital, mobile and social improved message clarity and greater non-advertising marketing efficiency.

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