The Procter & Gamble Company (PG) reported results for the second quarter of fiscal 2010 with earnings of $1.10 per share, below the Zacks Consensus Estimate of $1.37 but up 22% year-over-year.
Net sales for the quarter increased 6.4% year-over-year to $21.0 billion, driven by a 5% growth in unit volume, 1% benefit from pricing and positive currency translations of 2% contributing to the top line, partially offset by a 2% negative impact from geographic mix. Successful product launches, supported by marketing initiatives, also contributed to the top line. Organic sales grew 5% during the quarter, driven by volume and pricing.
Results by Segment
All three Global Business Units (GBU) witnessed revenue growth during the quarter. Volume in the Beauty segment grew 2%, with the low single-digit growth in female beauty volumes offset by the double-digit decline in Professional salon volume and low-single-digit decline in Prestige volume.
In addition, volume declines in the premium shaving systems, Male Personal Care volume and distribution declines on a non-strategic deodorant brand all impacted volume growth in the Grooming division.
The Household Care segment sales grew 9%. It was driven by high single-digit growth in Fabric Care and double-digit growth in Home Care segments. The growth in Fabric Care was due to due to trade inventory reductions and initiative-driven growth in the current period. Growth in the Home Care division was driven by market growth in North America and CEEMEA and trade inventory reductions in the prior-year period.
In the Baby Care division, volume increased high single-digits, while Family Care volume was up double-digits, primarily attributable to new initiatives and incremental merchandising activity.
The Health and Well Being segment was up 5%, with a 3% increase in unit volume growth. Personal Health Care volume increased mid-single digits due to double-digit growth of Vicks, which was driven by higher cold and flu levels and double-digit growth of diagnostics products. These were partially offset by lower shipments of Prilosec OTC in North America due to increased competitive activity. Oral Care volume grew mid-single digits driven by growth in Western Europe, Latin America and Asia and trade inventory reductions.
Net sales in the Snacks division grew 6% driven by positive pricing actions and favorable foreign exchange. The Pet Care segment increased mid single-digits, driven by the continued success of new product initiatives and increased promotional activity.
On the Balance Sheet
Gross margin for the quarter expanded 328 basis points (bps) to 53.7% versus 50.4% in the comparable prior-year quarter. The increase was primarily driven by benefits of price increases, lower commodity costs and manufacturing cost savings. The operating margin for the quarter also expanded 226 bps to 21.3% from 19.1% in the prior-year quarter.
Operating cash flow for the quarter increased 50% to $3.3 billion, due to reductions in working capital. The company has a debt-to-capitalization ratio of 24%. Capital expenditures for the first six months were $1.3 million.
Based on the performance in the first quarter, management raised its guidance for full fiscal 2010. Organic sales are now expected to grow 2% to 4% compared to 1% to 3% stated earlier. Net sales are reiterated to grow in the range of 3% to 6%.
Foreign exchange is expected to positively contribute 0% to 1% to net sales growth. Annual earnings are expected to be in the range of $4.02 to $4.12. Core earnings are now expected to be in the range of $3.53 to $3.63 per share compared to $3.47 to $3.59 stated earlier. Management increased the low end of the guidance range by $0.06 per share.
For the third quarter, management expects organic sales growth of 4% to 6%. Foreign exchange is expected to add 3% to 4% to sales in the quarter.
Net sales are expected to increase 7% to 10% versus the prior year. Core earnings are expected in the range of $0.77 to $0.82 per share.
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