Highlights From PG's Q1 Conference Call: All-in Sales, Organic Sales, and EPS Came in Ahead of Guidance Ranges

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October 29, 2009 4:07 PM EDT

Procter & Gamble Co. (NYSE: PG) reports Q1 EPS of $1.06, 7 cents better than the analyst estimate of $0.99. Revenue for the quarter was $19.80 billion, which compares to the estimate of $19.83 billion. Shares ended up 3.88%

Highlights From PG's Q1 Conference Call:

We are raising the bottom end of our GAAP earnings per share guidance range by $0.03 to $4.02 per share. Core earnings per share are expected to be 3.47 to 3.59 per share, in line to up 3% versus year ago.(Consensus is $4.10)
(CFO) July - September results are very encouraging. Organic volume improved sequentially.
All-in sales, organic sales, and earnings per share each came in well ahead of the top end of our guidance ranges.
Organic volume was down 2%, a two point improvement versus last quarter.
Volume strengthened throughout the quarter with September being an all-time record shipment month and ahead of year ago. Volume trends are negatively impacted by a very strong base period.
In North America, the base period included retailer volume pull-forward ahead of last fall's commodity based price increases.
In developing markets, and Central and Eastern Europe, Middle East, and Africa [CEEMEA] in particular, the base period included shipment trends that were not yet impacted by the significant foreign exchange driven pricing we took last year.
We fully expect volume growth in future quarters as we lap easier base periods, roll out the balance of our innovation plan which is back half skewed, continue to strengthen our media plans, and make targeted price adjustments where needed.
Organic sales growth was up 2% versus the guidance range of flat to down 3%.
Progress was broad based with all reportable segments either growing organic sales or showing sequential organic sales improvement. Pricing added 3% to sales.
Fiscal 2009 price increases, which have not yet fully annualized, were responsible for the increase. Favorable geographic mix increased sales 1%.
Foreign exchange had a negative impact of seven points, resulting in all-in sales being down 6%. All-in sales were well ahead of guidance which anticipated a decline of 7 to 10%.
Core earnings per share, which on the quarter adjust for the gain of the sale of our Actonel business in Japan, the operating earnings of the pharmaceutical business generated during the first quarter, and base period Folgers impacts, were $0.95 per share, in line with year ago.
Gross margin was up 290 basis points, primarily due to lower commodity costs and the full benefit of last fall's commodity based pricing actions.
The tax rate on the quarter was 27.7%, about in line with year ago. We had our strongest cash quarter ever with free cash flow of $4 billion.
Free cash flow productivity was 120%, well ahead of our 90% free cash flow productivity target. So we are encouraged by the above-target July - September quarter.
Tide Stain Release and Ariel Professional have been launched in 15 markets including the U.S., Canada, Germany, Italy, Spain, and Turkey. In the United States, shares are already in excess of 10%. We plan to launch into 18 additional markets over the next 18 months.
Bounce Dryer Bar is exceeding expectations, having already captured 7% of the fabric sheet segment in North America. Excel Gel has achieved a 9% value share in our lead market in the United Kingdom and has been expanded to Germany, France, Spain, Austria, Switzerland, Belgium, Holland, Portugal, and Greece.
Fairy auto dishwashing detergent in Western Europe is gaining share, with past three-month value shares across the nine markets where it was launched averaging 17%. In Sweden, one of our lead markets, value shares exceed 30%.
Olay Pro-X, which was launched in North America six months ago, is now being launched into China. Olay Pro-X is on pace to generate year one retail sales of nearly $100 million.
Pampers past four-week value shares remain above 60% with Pampers Simply Dry value share of 4%.
The recent launch of Naturella into Saudi Arabia is over-delivering versus expectations. Shipments are 20% above the going-in forecast. Naturella is now sold in nearly 30 markets around the world.
Price adjustmentshave been made in North American laundry, North American tissue/towel, and several Eastern European markets. Where price adjustments have been made, the business has responded positively. Most of the price adjustments we plan to make are now behind us with about 10% of the portfolio having been impacted.
(VP) U.S. results were impacted by strong shipments in the base period ahead of price increases we took last fall.
Additionally, unit volume in Central and Eastern Europe, Middle East, and Africa region was down nearly 10% following significant price increases taken last fiscal.
Moving to the segment results and starting with Beauty, organic sales increased 2%. Pricing and mix added 4% to sales growth, which more than offset a 1% decline in organic volume. While organic volume was down, this was several points better than initially expected, due mainly to improvement in businesses such as retail Hair Care and Skin Care.
In global Skin Care, value share is up nearly a point to more than 11%, and U.S. all outlet value share of facial moisturizers is up five points to over 45%.
In the Grooming segments, market contraction and soft market shares were the primary drivers of a 2% decline in organic sales. Shipments for the segment were down 8%, while pricing improved sales by 6%.
The Braun business continued to be affected by weak category demand in appliances with shipments down low teens.
Male personal care volume was up high single digits due mainly to increased competitive promotional activity in the shave prep category.
In male Blades and Razors, shipments declined high single digits as solid growth of the Fusion brand was more than offset by declines on legacy systems. These declines were most pronounced in the CEEMEA region, where the MACH3 brand was down 40%, due mainly to significant price increases last
fiscal.
The Fusion brand continues to build value share in the U.S., up three points to nearly 30% of the male Blades and Razors category. And on a global basis, Fusion value share is up two points to over 17%.
Moving to Health Care, organic sales were up 4%, driven by pricing and product mix as organic volume was about in line with prior-year levels. Organic volume grew 2% in developed markets, representing a nine point sequential improvement from the 7% decline reported in the June quarter.
Feminine Care volume declined slightly on a global basis due to double-digit decline in the CEEMEA region. The Always brand delivered high single-digit unit growth in Western Europe and mid-singles growth in Asia. In the U.S., Always shipments were in line with prior year despite modest category contraction.
To personal Health Care, the home diagnostics business grew volume double digits, and Prilosec OTC volume increased mid-single digits behind strong merchandising programs. Vicks shipments were in line with prior year levels as strong unit volume growth in North America, Asia, and Latin America was offset by a double-digit decline in the CEEMEA region. The early and intense flu season has helped to drive the U.S. respiratory care category up by nearly seven points versus prior year.
In the Snacks and Pet Care segment, organic sales were down 3%, driven by a 10% volume decline, which was partially offset by seven points of pricing and mix benefit.
In the Fabric and Home Care segment, organic sales were up 2% as a 2% decline in organic volume was more than offset by a 4% net benefit from pricing and mix. Fabric care shipments were down modestly, driven by high single digit declines in the North America and CEEMEA regions.
The Febreze brand grew global volume mid-teens, led by nearly 20% growth in North America behind the initial success of the Home Collections line of air fresheners and home decor innovations. Febreze all-outlet value share of the U.S. instant action air care market is up more than four percentage points to 28%.
The Dawn and Fairy global dish care franchise grew volume high single digits behind the Fairy Platinum ActionPac launch in Western Europe. In the U.S., the market leading Dawn brand grew all-outlet value share by about 0.5 point to 44%.
Battery shipments were down mid-single digits due mainly to a 10% market size contraction in the U.S. and market share challenges in both developed and developing markets.
In Baby Care and Family Care, we delivered organic sales up 1%. Volume was down 1% but was more than offset by positive pricing. Global Baby Care shipments were up low single digits, led by high single digit growth in Western Europe behind the Pampers Simply Dry value tier expansion. Pampers diaper value share in Western Europe was up nearly a point to 54%, including a 2.5 point advance in the UK to nearly 60% of the market.
U.S. all-outlet value share for Charmin was down by about a point to 27%, and Bounty value share was in line with year-ago levels at nearly 46%.
(CFO) For the fiscal year, we expect organic sales growth of 2 to 4%. This is an increase of one percentage point versus our previous guidance range of 1 to 3%. The increase is driven by the July - September over-delivery and the slight improvement in underlying market growth.
We now expect full-year market growth of 1 to 2%. This is up a point versus prior estimates, but still well below historical levels.
Foreign exchange based on current spot rates should positively impact sales by 1 to 2%, resulting in all-in sales of 3 to 6%. This is up several points ahead of our prior guidance range of 1 to 3%.
Turning to October - December, we expect organic sales growth of 2 to 5%. The midpoint of this range represents solid sequential improvement from the inflection point we achieved during July - September. With global market growth rates assumed to be up 1 to 2%, our guidance range suggests value share growth during the October - December quarter. All-in sales, inclusive of a one to two point benefit from foreign exchange, are expected to be up 3 to 7%. All-in GAAP earnings per share are expected to be $1.36 to $1.44 per share. This includes a one-time gain of approximately $0.43 cents per share from the divestiture of the pharmaceuticals business, which is progressing as planned towards a targeted close date of October 30.
Q2 Core earnings per share are expected to be $0.91 cents to $1.00 per share. This is up 1 to 11% versus a year ago base period which included high commodity costs.