Market Overview

P&G Announces Fiscal Year 2019 First Quarter Results

Share:

Net Sales in-line vs. YA; Organic Sales +4%;
Diluted Net EPS $1.22, +15%; Core EPS $1.12, +3%;

Currency-Neutral Core EPS +11%; Maintains
Organic Sales and Core EPS Guidance

The Procter & Gamble Company (NYSE:PG) reported first quarter fiscal
year 2019 net sales of $16.7 billion, in-line with the year-ago level.
Excluding the impacts of foreign exchange, acquisitions and
divestitures, organic sales increased four percent. Diluted net earnings
per share were $1.22, an increase of 15% versus the prior year. Core
earnings per share increased three percent to $1.12. Currency-neutral
core EPS increased 11% versus the prior year.

Operating cash flow was $3.6 billion for the quarter. Adjusted free cash
flow productivity was 95%. The Company returned $3.1 billion of cash to
shareholders via $1.9 billion of dividend payments and nearly $1.3
billion of common stock repurchases.

"We generated strong consumption, organic volume and organic sales in
the first quarter. This keeps us on track to deliver our top- and
bottom-line targets for the fiscal year," said David Taylor, Chairman,
President and Chief Executive Officer. "Our focus on superiority,
productivity and improving P&G's organization and culture is driving
improved results."

July - September Quarter Discussion

Net sales in the first quarter of fiscal year 2019 were $16.7 billion,
in-line with the prior year. Unfavorable foreign exchange was a three
percent hurt to sales for the quarter. Excluding the impacts of foreign
exchange, acquisitions and divestitures, organic sales increased four
percent driven by a three percent increase in shipment volume. Positive
mix impact was a one percent help to organic sales due to the
disproportionate organic growth of the Skin and Personal Care and
Personal Health Care categories and strong growth in the United States.
Pricing was neutral to the quarter.

July - September 2018

 

Volume

 

Foreign
Exchange

 

Price

   

Mix

   

Other (2)

 

Net Sales

       

Organic
Volume

 

Organic
Sales

Net Sales Drivers (1)

Beauty 3% (3)%

2%

3% —% 5% 3% 7%
Grooming 5% (4)% 1% (2)% (1)% (1)% 5% 4%
Health Care 1% (2)% —% (1)% (1)% (3)% 4% 4%
Fabric & Home Care 4% (2)% (1)% 1% —% 2% 5% 5%
Baby, Feminine & Family Care   1%   (2)%   (1)%     —%     (1)%   (3)%         1%   (1)%
Total P&G   3%   (3)%   —%     1%     (1)%   —%         3%   4%
(1)   Net sales percentage changes are approximations based on
quantitative formulas that are consistently applied.
(2) Other includes the sales mix impact from acquisitions and
divestitures, the impact from the July 1, 2018 adoption of new
accounting standards for "Revenue from Contracts with Customers" and
rounding impacts necessary to reconcile volume to net sales.
 
  • Beauty segment organic sales increased seven percent versus year ago.
    Skin and Personal Care organic sales increased double digits due to
    premium innovation, increased marketing investments and positive
    product mix from the disproportionate growth of the super-premium
    SK-II brand and Olay Skin Care, which each grew strong double-digits.
    Personal Care products, including Safeguard, Old Spice, Olay and
    Secret, delivered mid-single-digit growth. Hair Care organic sales
    increased low single digits due to increased pricing, innovation and
    improved retail executions.
  • Grooming segment organic sales increased four percent. Shave Care
    organic sales increased mid-single digits driven by improved consumer
    value, product innovation, investments in its direct-to-consumer
    programs and increased pricing in certain markets, partially offset by
    negative mix. Appliances organic sales increased low single digits due
    to improved merchandising programs and underlying market growth.
  • Health Care segment organic sales increased four percent. Oral Care
    organic sales increased low single digits due to innovation and
    increased merchandising investments. Personal Health Care organic
    sales increased double digits due to innovation, increased
    merchandising investments and price increases. Vicks organic sales
    grew strong double-digits. All-in sales declined due to the
    dissolution of the PGT Healthcare partnership.
  • Fabric and Home Care segment organic sales increased five percent for
    the quarter. Fabric Care organic sales increased mid-single digits
    driven by innovation and strengthened merchandising programs. Home
    Care organic sales increased mid-single digits driven by innovation
    and improved retail executions.
  • Baby, Feminine and Family Care segment organic sales decreased one
    percent versus year ago. Baby Care organic sales decreased mid-single
    digits as growth of premium-tier innovations were more than offset by
    declines on mid- and value-tier products and pricing investments to
    improve consumer value, primarily on the Luvs brand in the U.S.
    Feminine Care organic sales increased mid-single digits driven by
    innovation and positive product mix, due to the disproportionate
    growth of premium pad and adult incontinence products. Family Care
    organic sales increased mid-single digits due to innovation, increased
    distribution, and strengthened merchandising programs.

Diluted net earnings per share were $1.22, an increase of 15% versus the
prior year, primarily due to a gain on the dissolution of our PGT
Healthcare partnership. Core earnings per share were $1.12, an increase
of three percent versus the prior year, as benefits from a lower tax
rate due to implementation of the U.S. Tax Act was partially offset by a
reduction in operating margin, driven largely by negative currency
impacts and lower non-operating income. Currency-neutral core earnings
per share increased 11% for the quarter.

Reported gross margin decreased 110 basis points, including
approximately 30 basis points benefit from lower non-core restructuring
charges versus the prior year. Core gross margin decreased 150 basis
points, including 60 basis points of negative foreign exchange impacts.
On a currency-neutral basis, core gross margin decreased 90 basis
points, as 170 basis points of productivity savings were more than
offset by 100 basis points of commodity cost increases and 160 basis
points of unfavorable product mix, innovation and capacity start-up
investments and other impacts.

Selling, general and administrative expense (SG&A) as a percentage of
sales decreased 50 basis points on a reported basis versus the prior
year, including approximately 20 basis points impact from a year-on-year
increase in non-core restructuring charges. Core SG&A as a percentage of
sales decreased 80 basis points versus the prior year, including 70
basis points of negative foreign exchange impacts. On a currency-neutral
basis, core SG&A as a percentage of sales decreased 150 basis points
driven primarily by 80 basis points of net savings from overhead, media,
agency fee and advertising production cost productivity and 70 basis
points of sales leverage.

Operating profit margin decreased 60 basis points versus the base period
on a reported basis including approximately 10 basis points help from
lower non-core restructuring charges. Core operating margin decreased 80
basis points including 130 basis points of negative foreign exchange
impacts. On a currency-neutral basis, Core operating margin increased 50
basis points including total productivity cost savings of 250 basis
points for the quarter.

Fiscal Year 2019 Guidance

P&G said it is maintaining its guidance for organic sales growth in the
range of two to three percent for fiscal 2019. The Company now estimates
fiscal 2019 all-in sales growth in the range of down two percent to
in-line versus the prior fiscal year, which includes a headwind of three
to four percentage points to sales growth from foreign exchange. The net
effect of acquisitions and divestitures should have a modest positive
impact on all-in sales growth.

The Company also maintained its expectation for core earnings per share
growth of three to eight percent versus fiscal 2018 Core EPS of $4.22.
This outlook includes an estimated $1.3 billion headwind from foreign
exchange and higher commodity costs. On a currency-neutral basis, this
guidance translates to Core EPS growth of eleven to sixteen percent. On
an all-in GAAP basis, diluted net earnings per share are expected to
increase seventeen to twenty-four percent versus the prior year.

The Company expects adjusted free cash flow productivity of 90% or
better for fiscal 2019. P&G expects to pay over $7 billion in dividends
and repurchase up to $5 billion of common shares.

Forward-Looking Statements

Certain statements in this release or presentation, other than purely
historical information, including estimates, projections, statements
relating to our business plans, objectives, and expected operating
results, and the assumptions upon which those statements are based, are
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements generally are identified by the words
"believe," "project," "expect," "anticipate," "estimate," "intend,"
"strategy," "future," "opportunity," "plan," "may," "should," "will,"
"would," "will be," "will continue," "will likely result," and similar
expressions. Forward-looking statements are based on current
expectations and assumptions, which are subject to risks and
uncertainties that may cause results to differ materially from those
expressed or implied in the forward-looking statements. We undertake no
obligation to update or revise publicly any forward-looking statements,
whether because of new information, future events or otherwise.

Risks and uncertainties to which our forward-looking statements are
subject include, without limitation: (1) the ability to successfully
manage global financial risks, including foreign currency fluctuations,
currency exchange or pricing controls and localized volatility; (2) the
ability to successfully manage local, regional or global economic
volatility, including reduced market growth rates, and to generate
sufficient income and cash flow to allow the Company to affect the
expected share repurchases and dividend payments; (3) the ability to
manage disruptions in credit markets or changes to our credit rating;
(4) the ability to maintain key manufacturing and supply arrangements
(including execution of supply chain optimizations and sole supplier and
sole manufacturing plant arrangements) and to manage disruption of
business due to factors outside of our control, such as natural
disasters and acts of war or terrorism; (5) the ability to successfully
manage cost fluctuations and pressures, including prices of commodities
and raw materials, and costs of labor, transportation, energy, pension
and healthcare; (6) the ability to stay on the leading edge of
innovation, obtain necessary intellectual property protections and
successfully respond to changing consumer habits and technological
advances attained by, and patents granted to, competitors; (7) the
ability to compete with our local and global competitors in new and
existing sales channels, including by successfully responding to
competitive factors such as prices, promotional incentives and trade
terms for products; (8) the ability to manage and maintain key customer
relationships; (9) the ability to protect our reputation and brand
equity by successfully managing real or perceived issues, including
concerns about safety, quality, ingredients, efficacy or similar matters
that may arise; (10) the ability to successfully manage the financial,
legal, reputational and operational risk associated with third-party
relationships, such as our suppliers, distributors, contractors and
external business partners; (11) the ability to rely on and maintain key
company and third party information technology systems, networks and
services, and maintain the security and functionality of such systems,
networks and services and the data contained therein; (12) the ability
to successfully manage uncertainties related to changing political
conditions (including the United Kingdom's decision to leave the
European Union) and potential implications such as exchange rate
fluctuations and market contraction; (13) the ability to successfully
manage regulatory and legal requirements and matters (including, without
limitation, those laws and regulations involving product liability,
intellectual property, antitrust, data protection, tax, environmental,
and accounting and financial reporting) and to resolve pending matters
within current estimates; (14) the ability to manage changes in
applicable tax laws and regulations including maintaining our intended
tax treatment of divestiture transactions; (15) the ability to
successfully manage our ongoing acquisition, divestiture and joint
venture activities, in each case to achieve the Company's overall
business strategy and financial objectives, without impacting the
delivery of base business objectives; and (16) the ability to
successfully achieve productivity improvements and cost savings and
manage ongoing organizational changes, while successfully identifying,
developing and retaining key employees, including in key growth markets
where the availability of skilled or experienced employees may be
limited. For additional information concerning factors that could cause
actual results and events to differ materially from those projected
herein, please refer to our most recent 10-K, 10-Q and 8-K reports.

About Procter & Gamble

P&G serves consumers around the world with one of the strongest
portfolios of trusted, quality, leadership brands, including Always®,
Ambi Pur®, Ariel®, Bounty®, Charmin®, Crest®, Dawn®, Downy®, Fairy®,
Febreze®, Gain®, Gillette®, Head & Shoulders®, Lenor®, Olay®, Oral-B®,
Pampers®, Pantene®, SK-II®, Tide®, Vicks®, and Whisper®. The P&G
community includes operations in approximately 70 countries worldwide.
Please visit http://www.pg.com
for the latest news and information about P&G and its brands.

 
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per Share Amounts)
Consolidated Earnings Information
   
Three Months Ended September 30
2018   2017   % Chg
NET SALES $ 16,690 $ 16,653 %
Cost of products sold 8,484   8,269   3 %
GROSS PROFIT 8,206 8,384 (2 )%
Selling, general and administrative expense 4,652   4,736   (2 )%
OPERATING INCOME 3,554 3,648 (3 )%
Interest expense 129 115 12 %
Interest income 53 49 8 %
Other non-operating income, net 462   169   173 %
EARNINGS BEFORE INCOME TAXES 3,940 3,751 5 %
Income taxes 729 881 (17 )%
NET EARNINGS 3,211   2,870   12 %
Less: Net earnings attributable to noncontrolling interests 12   17   (29 )%
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE $ 3,199   $ 2,853   12 %
 
EFFECTIVE TAX RATE 18.5 % 23.5 %
 
NET EARNINGS PER SHARE (1)    
Basic $ 1.26   $ 1.09   16 %
Diluted $ 1.22   $ 1.06   15 %
 
DIVIDENDS PER COMMON SHARE $ 0.7172 $ 0.6896
Diluted Weighted Average Common Shares Outstanding 2,612.1 2,690.6
 
COMPARISONS AS A % OF NET SALES Basis Pt Chg
Gross margin 49.2% 50.3% (110)
Selling, general and administrative expense 27.9% 28.4% (50)
Operating margin 21.3% 21.9% (60)
Earnings before income taxes 23.6% 22.5% 110
Net earnings 19.2% 17.2% 200
Net earnings attributable to Procter & Gamble 19.2% 17.1% 210

(1)

  Basic net earnings per share and Diluted net earnings per share are
calculated on Net earnings attributable to Procter & Gamble.
 
 
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

(Amounts in Millions)

Consolidated Earnings Information
   
Three Months Ended September 30, 2018
  % Change     % Change     % Change
Versus Year

Earnings Before

Versus Year Versus Year
Net Sales   Ago  

Income Taxes

  Ago   Net Earnings   Ago
Beauty $3,289 5% $947 13% $759 20%
Grooming 1,562 (1)% 417 1% 340 3%
Health Care 1,845 (3)% 440 (3)% 332 9%
Fabric & Home Care 5,488 2% 1,144 (3)% 877 14%
Baby, Feminine & Family Care 4,390 (3)% 902 (6)% 692 10%
Corporate 116 7% 90 N/A 211 N/A
Total Company $16,690 —% $3,940 5% $3,211 12%
   
Three Months Ended September 30, 2018
(Percent Change vs. Year Ago) (1)
Volume with   Volume Excluding          
Acquisitions & Acquisitions & Foreign Net Sales
Divestitures   Divestitures   Exchange   Price   Mix  

Other (2)

  Growth
Beauty 3% 3% (3)% 2% 3% —% 5%
Grooming 5% 5% (4)% 1% (2)% (1)% (1)%
Health Care 1% 4% (2)% —% (1)% (1)% (3)%
Fabric & Home Care 4% 5% (2)% (1)% 1% —% 2%
Baby, Feminine & Family Care 1%   1%   (2)%   (1)%   —%   (1)%   (3)%
Total Company 3%   3%   (3)%   —%   1%   (1)%   —%
(1)   Net sales percentage changes are approximations based on
quantitative formulas that are consistently applied.
(2) Other includes the sales mix impact from acquisitions and
divestitures, the impact from the July 1, 2018 adoption of new
accounting standards for "Revenue from Contracts with Customers" and
rounding impacts necessary to reconcile volume to net sales.
 
 
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

(Amounts in Millions Except Per Share Amounts)

Consolidated Statements of Cash Flows
   
Three Months Ended September 30

Amounts in millions

2018     2017
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD $ 2,569 $ 5,569
OPERATING ACTIVITIES
Net earnings 3,211 2,870
Depreciation and amortization 643 692
Share-based compensation expense 102 84
Deferred income taxes 34 426
Gain on sale of assets (361 ) (81 )
Changes in:
Accounts receivable (475 ) (304 )
Inventories (494 ) (357 )
Accounts payable, accrued and other liabilities 933 235
Other operating assets and liabilities (84 ) (30 )
Other 58   96  
TOTAL OPERATING ACTIVITIES 3,567   3,631  
INVESTING ACTIVITIES
Capital expenditures (1,080 ) (1,132 )
Proceeds from asset sales 9 120
Acquisitions, net of cash acquired (237 )
Purchases of short-term investments (158 ) (1,942 )
Proceeds from sales and maturities of short-term investments 649 388
Change in other investments (48 ) 32  
TOTAL INVESTING ACTIVITIES (865 ) (2,534 )
FINANCING ACTIVITIES
Dividends to shareholders (1,853 ) (1,823 )
Change in short-term debt 24 48
Additions to long-term debt 2,124
Reductions of long-term debt (151 )
Treasury stock purchases (1,252 ) (2,502 )
Impact of stock options and other 425   580  
TOTAL FINANCING ACTIVITIES (2,656 ) (1,724 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND
RESTRICTED CASH
(70 ) 82  
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (24 ) (545 )
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD $ 2,545   $ 5,024  
 
 
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

(Amounts in Millions Except Per Share Amounts)

Condensed Consolidated Balance Sheets
         
September 30, 2018 June 30, 2018
Cash and cash equivalents $ 2,545 $ 2,569
Available-for-sale investment securities 8,708 9,281
Accounts receivable 5,035 4,686
Inventories 5,182 4,738
Prepaid expenses and other current assets 1,876 2,046
TOTAL CURRENT ASSETS 23,346 23,320
Property, plant and equipment, net 20,590 20,600
Goodwill 45,225 45,175
Trademarks and other intangible assets, net 23,919 23,902
Other noncurrent assets 5,360 5,313
TOTAL ASSETS $ 118,440 $ 118,310
 
Accounts payable $ 10,243 $ 10,344
Accrued and other liabilities 8,469 7,470
Debt due within one year 10,508 10,423
TOTAL CURRENT LIABILITIES 29,220 28,237
Long-term debt 20,779 20,863
Deferred income taxes 6,179 6,163
Other noncurrent liabilities 9,758 10,164
TOTAL LIABILITIES 65,936 65,427
TOTAL SHAREHOLDERS' EQUITY 52,504 52,883
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 118,440 $ 118,310
 

The Procter & Gamble Company

Exhibit 1: Non-GAAP Measures

In accordance with the SEC's Regulation G, the following provides
definitions of the non-GAAP measures used in Procter & Gamble's
October 19, 2018 earnings release and the reconciliation to the most
closely related GAAP measure. We believe that these measures provide
useful perspective on underlying business results and trends (i.e.,
trends excluding non-recurring or unusual items) and provide a
supplemental measure of year-on-year results. The non-GAAP measures
described below are used by management in making operating decisions,
allocating financial resources and for business strategy purposes. These
measures may be useful to investors as they provide supplemental
information about business performance and provide investors a view of
our business results through the eyes of management. These measures are
also used to evaluate senior management and are a factor in determining
their at-risk compensation. These non-GAAP measures are not intended to
be considered by the user in place of the related GAAP measure, but
rather as supplemental information to our business results. These
non-GAAP measures may not be the same as similar measures used by other
companies due to possible differences in method and in the items or
events being adjusted.

The Core earnings measures included in the following reconciliation
tables refer to the equivalent GAAP measures adjusted as applicable for
the following items:

Incremental Restructuring: The Company has
had and continues to have an ongoing level of restructuring activities.
Such activities have resulted in ongoing annual restructuring related
charges of approximately $250 - $500 million before tax. In 2012, the
Company began a $10 billion strategic productivity and cost savings
initiative that included incremental restructuring activities. In 2017,
we communicated details of an additional multi-year productivity and
cost savings plan. This results in incremental restructuring charges to
accelerate productivity efforts and cost savings. The adjustment to Core
earnings includes only the restructuring costs above what we believe are
the normal recurring level of restructuring costs.

Gain on Dissolution of PGT Healthcare Partnership:
The Company finalized the dissolution of our PGT Healthcare partnership,
a venture between the Company and Teva Pharmaceuticals Industries, Ltd.
(Teva) in the OTC consumer healthcare business, in the quarter ended
September 30, 2018. The transaction was accounted for as a sale of the
Teva portion of the PGT business; the Company recognized an after-tax
gain on the dissolution of $353 million.

We do not view the above items to be part of our sustainable results and
their exclusion from Core earnings measures provides a more comparable
measure of year-on-year results. These items are also excluded when
evaluating senior management in determining their at-risk compensation.

Organic sales growth: Organic sales growth
is a non-GAAP measure of sales growth excluding the impacts of
acquisitions and divestitures, the impact from the July 1, 2018 adoption
of new accounting standards for "Revenue from Contracts with Customers"
and foreign exchange from year-over-year comparisons. The impact of the
adoption of the new accounting standard for Revenue from Contracts with
Customers is driven by the prospective reclassification of certain
customer spending from marketing (SG&A) expense to a reduction of Net
sales. We believe this measure provides investors with a supplemental
understanding of underlying sales trends by providing sales growth on a
consistent basis. This measure is used in assessing achievement of
management goals for at-risk compensation.

Core operating profit margin: Core
operating profit margin is a measure of the Company's operating margin
adjusted for items as indicated. Management believes this non-GAAP
measure provides a supplemental perspective to the Company's operating
efficiency over time.

Core gross margin: Core gross margin is a
measure of the Company's gross margin adjusted for items as indicated.
Management believes this non-GAAP measure provides a supplemental
perspective to the Company's operating efficiency over time.

Core selling, general and administrative (SG&A)
expense as a percentage of net sales
: Core SG&A expense as a
percentage of net sales is a measure of the Company's selling, general
and administrative expenses adjusted for items as indicated. Management
believes this non-GAAP measure provides a supplemental perspective to
the Company's operating efficiency over time.

Core effective tax rate: Core effective tax
rate is a measure of the Company's effective tax rate adjusted for items
as indicated.

Core EPS and currency-neutral Core EPS:
Core earnings per share, or Core EPS, is a measure of the Company's
diluted net earnings per share adjusted as indicated. Currency-neutral
Core EPS is a measure of the Company's Core EPS excluding the
incremental current year impact of foreign exchange. Management views
these non-GAAP measures as useful supplemental measures of Company
performance over time. These measures are also used when evaluating
senior management in determining their at-risk compensation.

Adjusted free cash flow: Adjusted free cash
flow is defined as operating cash flow less capital spending and
excluding payments for the transitional tax resulting from the
comprehensive U.S. legislation commonly referred to as the Tax Cuts and
Jobs Act in December 2017 (the U.S. Tax Act). Adjusted free cash flow
represents the cash that the Company is able to generate after taking
into account planned maintenance and asset expansion. Management views
adjusted free cash flow as an important measure because it is one factor
used in determining the amount of cash available for dividends, share
repurchases, acquisitions and other discretionary investments.

Adjusted free cash flow productivity:
Adjusted free cash flow productivity is defined as the ratio of adjusted
free cash flow to net earnings excluding the gain on dissolution of the
PGT Healthcare partnership, which is non-recurring and not considered
indicative of underlying cash flow performance. Management views
adjusted free cash flow productivity as a useful measure to help
investors understand P&G's ability to generate cash. Adjusted free cash
flow productivity is used by management in making operating decisions,
allocating financial resources and for budget planning purposes. This
measure is also used in assessing the achievement of management goals
for at-risk compensation. The Company's long-term target is to generate
annual adjusted free cash flow productivity at or above 90 percent.

 
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

(Amounts in Millions Except Per Share Amounts)

Reconciliation of Non-GAAP Measures
 

Three Months Ended September 30, 2018

      GAIN ON    
AS REPORTED INCREMENTAL DISSOLUTION OF NON-GAAP
(GAAP) RESTRUCTURING PGT PARTNERSHIP ROUNDING (CORE)
COST OF PRODUCTS SOLD $ 8,484 $ (46 ) $ $ $ 8,438
GROSS PROFIT 8,206 46 8,252
GROSS MARGIN 49.2 % 0.3 % % (0.1 )% 49.4 %
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 4,652 (28 ) 1 4,625
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE AS A % OF NET SALES 27.9 % (0.2 )% % % 27.7 %
OPERATING INCOME 3,554 74 (1 ) 3,627
OPERATING PROFIT MARGIN 21.3 % 0.4 % % % 21.7 %
INCOME TAX 729 6 (2 ) 1 734
NET EARNINGS ATTRIBUTABLE TO P&G 3,199 69 (353 ) 2,915
EFFECTIVE TAX RATE 18.5 % (0.2 )% 1.7 % % 20.0 %
               

Core EPS                   

DILUTED NET EARNINGS PER COMMON SHARE (1) $ 1.22     $ 0.03     $ (0.14 )   $ 0.01     $ 1.12  
CURRENCY IMPACT TO CORE EARNINGS 0.09
CURRENCY-NEUTRAL CORE EPS   $ 1.21  
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,612.1
COMMON SHARES OUTSTANDING - SEPTEMBER 30, 2018 2,491.4
(1)   Diluted net earnings per share are calculated on Net earnings
attributable to Procter & Gamble.
 
                             
CHANGE VERSUS YEAR AGO                      
CORE GROSS MARGIN (150 ) BPS
CORE SELLING GENERAL & ADMINISTRATIVE EXPENSE AS A % OF NET SALES (80 ) BPS
CORE OPERATING PROFIT MARGIN (80 ) BPS
CORE EFFECTIVE TAX RATE (340 ) BPS
CORE EPS 3 %
CURRENCY-NEUTRAL CORE EPS 11 %
 
 
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per Share Amounts)
Reconciliation of Non-GAAP Measures
 
Three Months Ended September 30, 2017
  AS REPORTED     INCREMENTAL      
(GAAP) RESTRUCTURING   ROUNDING NON-GAAP (CORE)
COST OF PRODUCTS SOLD $ 8,269 $ (100 ) $ $ 8,169
GROSS PROFIT 8,384 100 8,484
GROSS MARGIN 50.3 % 0.6 % % 50.9 %
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 4,736 7 4,743
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE AS A % OF NET SALES 28.4 % % 0.1 % 28.5 %
OPERATING INCOME 3,648 93 3,741
OPERATING PROFIT MARGIN 21.9 % 0.6 % % 22.5 %
INCOME TAX 881 20 901
NET EARNINGS ATTRIBUTABLE TO P&G 2,853 75 2,928
EFFECTIVE TAX RATE 23.5 % (0.1 )% % 23.4 %
               

Core EPS:                     

DILUTED NET EARNINGS PER COMMON SHARE (1) $ 1.06       $ 0.03       $     $ 1.09  
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
(1)   Diluted net earnings per share are calculated on Net earnings
attributable to Procter & Gamble.
 
 

Organic sales growth:

                 
     

Acquisition &

 

Foreign Exchange

Divestiture

Organic Sales

July - September 2018

Net Sales Growth

Impact

Impact/Other(1)

Growth

Beauty 5% 3% (1)% 7%
Grooming (1)% 4% 1% 4%
Health Care (3)% 2% 5% 4%
Fabric & Home Care 2% 2% 1% 5%
Baby, Feminine & Family Care   (3)%   2%   —%   (1)%
Total P&G   —%   3%   1%   4%
                         
           

Combined Foreign Exchange &

     

Organic Sales

Total P&G

Net Sales Growth

Acquisition/Divestiture Impact/Other
(1)

Growth

FY 2019
(Estimate)

      (2)% to 0%       4% to 3%       +2% to +3%
(1)   Acquisition & Divestiture Impact/Other includes the volume and mix
impact of acquisitions and divestitures, the impact from the July 1,
2018 adoption of new accounting standards for "Revenue from
Contracts with Customers" and rounding impacts necessary to
reconcile net sales to organic sales.
 
 

Core EPS:

             
 

Diluted EPS

   

Total P&G

Growth

Impact of Incremental Non-Core Items
(1)

Core EPS Growth

FY 2019
(Estimate)

  +17% to +24%   (14)% to (16)%   +3% to +8%
(1)   Includes the gain on the dissolution of the PGT Healthcare
partnership in 2019 and the impact of U.S. Tax Act and loss on early
extinguishment of debt in 2018 and year-over-year changes in
incremental non-core restructuring charges.
                               
                       

Currency-Neutral

Total P&G

Core EPS Growth

Currency impact to Core EPS

Core EPS Growth

FY 2019
(Estimate)

        +3% to +8%         +8%         +11% to +16%
 
 

Adjusted free cash flow (dollar amounts in
millions)
:

 
Three Months Ended September 30, 2018
 

Operating Cash Flow

 

Capital Spending

 

U.S. Tax Act Payments

 

Adjusted Free Cash Flow

$3,567   $(1,080)   $235   $2,722
 
 

Adjusted free cash flow productivity (dollar
amounts in millions)
:

 
Three Months Ended September 30, 2018
 

Adjusted Free Cash

       

Gain on Dissolution of PGT

       

Adjusted Free Cash

Flow

Net Earnings

Partnership

Adjusted Net Earnings

Flow Productivity

$2,722     $3,211     $(353)     $2,858     95%

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