Procter & Gamble (PG) Announces Sale of Duracell Unit; Guides FY15 EPS to Low-End of Range

Procter & Gamble (NYSE: PG) is hosting its 2014 Analyst Meeting today in Cincinnati, Ohio. Chairman of the Board, President and Chief Executive Officer, A.G. Lafley, will lead a discussion of the strategic choices P&G has made to improve sales growth, profitability and cash productivity while strengthening its business portfolio and organization.

“We have the right strategic priorities, and we’re making good progress against all elements,” said Lafley. “We’re clear-eyed about the challenges we face from external forces, like currencies. We will continue to accelerate and increase productivity savings, sharpen our strategies and strengthen our portfolio – all focused on delivering superior value to consumers and balanced growth and value creation for P&G shareowners.”

Berkshire Hathaway to Acquire Duracell in Exchange for P&G Shares

Following its prior announcement of plans to exit the Duracell business, P&G said it now plans to execute a split transaction, in which it will exchange a recapitalized Duracell Company for Berkshire Hathaway’s shares of P&G stock.

“We thank the Duracell employees for their many contributions to the business. They’ve made Duracell the global market leader in the battery category,” said Mr. Lafley. “I’m confident this new ownership structure will provide strong support for Duracell’s future growth plans.”

“I have always been impressed by Duracell, as a consumer and as a long-term investor in P&G and Gillette,” commented Warren E. Buffett, Berkshire Hathaway chief executive officer. “Duracell is a leading global brand with top quality products, and it will fit well within Berkshire Hathaway.”

Berkshire’s stock ownership is currently valued at approximately $4.7 billion. P&G said it expects to contribute approximately $1.8 billion in cash to the Duracell Company in the pre-transaction recapitalization.

P&G said the transaction maximizes the after-tax value of the Duracell business and is tax efficient for P&G. The value received for Duracell in the exchange is approximately 7-times fiscal year 2014 adjusted EBITDA. This equates to a cash sale valued at approximately 9-times adjusted EBITDA.

As part of the exit of the battery business, P&G announced that it closed the sale of its interest in a China-based battery joint venture earlier in the week.

Based on the signing of the contract to exit the Duracell business, P&G will restate Batteries results to discontinued operations effective with the reporting of October-December 2014 quarterly results. The Company expects to restate earnings per share of approximately $0.12 to $0.14 to discontinued operations for fiscal year 2014. All-in GAAP earnings per share are not affected by the restatements.

P&G said it will incur a non-core, non-cash charge of approximately $0.28 per share in current quarter results to adjust Duracell goodwill and intangible assets to the expected after-tax transaction value. P&G expects to finalize the restatement and one-time charge amounts in the next few weeks, and will update shareholders when final amounts are available.

P&G said it expects to close the Duracell transaction in the second half of calendar year 2015 pending necessary regulatory approvals.

Goldman Sachs & Co. acted as financial advisor, Cadwalader, Wickersham & Taft LLP acted as tax counsel, and Jones Day acted as legal counsel to P&G.

Fiscal Year 2015 Outlook

The Company reiterated its organic sales growth and core earnings per share growth guidance ranges for fiscal year 2015. P&G continues to expect organic sales growth in the low-to-mid single digit range. Net sales growth is expected to be in-line to up low single digits versus the prior fiscal year, including a negative two point impact from foreign exchange.

P&G maintained its core earnings per share growth guidance range of mid-single digits, though it noted that foreign exchange impacts skew the Company toward the low-end of the guidance range. P&G said it is working to offset currency headwinds with increased productivity-driven cost savings.

P&G added that the quarterly profile of earnings will be heavily influenced by the variation of foreign exchange impacts from period-to-period. The Company expects significant negative sales and earnings impacts from foreign exchange in the October-December 2014 quarter.

P&G noted that core earnings per share estimates for fiscal year 2015 should be calculated based on restated 2014 core EPS range of $4.08 to $4.10, reflecting the Batteries exit.

All-in GAAP diluted net earnings per share are now expected to be down 12% percent to down 15% percent versus the prior year, including approximately $0.83 per share of non-core charges, primarily from $0.20 per share of non-core restructuring charges and $0.60 of impairment charges, net of tax impacts.

You May Also Be Interested In

• IBM tumbles on soft Q1 revenue; announces HashiCorp $6.4bn acquisition
• PTC Therapeutics (PTCT) Tops Q1 EPS by 9c, provides guidance
• Atlassian (TEAM) comes ahead of Street estimates in Q1 but shares tumble