The Procter & Gamble Company (PG) reported results for the third quarter of fiscal 2010 with earnings of 89 cents per share, above the Zacks Consensus Estimate of 82 cents and up 10% year-over-year.
Net sales for the quarter increased 7.4% year-over-year to $19.2 billion, driven by a 7% growth in unit volume and favorable currency translation of 3%, partially offset by a 2% decline in mix and pricing, which offset the top line by 1%. However, successful product launches, supported by marketing initiatives, contributed to the top line. Organic sales grew 4% during the quarter, driven by volume.
By Segment
All three Global Business Units (GBU) witnessed revenue growth during the quarter. Volume in the Beauty segment grew 4%, with mid-single-digit growth in both Hair Care and Female Beauty volumes. Prestige volume also grew mid single-digits. This was partially offset by the high single-digit decline in Professional salon volume.
In addition, volume in Male Blades and Razors increased high single-digits with strong growth in both developed and developing markets. Gillette Fusion volume grew double-digit during the quarter. Volume in Male Personal Care grew low single-digits while volume in Braun was up mid-single-digits.
The Household Care segment sales grew 8%. It was driven by double-digit growth in Fabric Care and Home Care segments. The growth in Fabric Care was due to due investments to improve consumer value and trade inventory increases to support merchandising activity in North America. The growth in the Home Care division was driven by market size expansion and share growth, further driven by the continued success of new products launched in prior quarters and increased merchandising activity.
Both the Baby Care division and Family Care volumes increased double-digits. Volume in the Baby Care division grew due to share growth, market size expansion and trade inventory increases. Volume in Family Care was up double digits behind incremental merchandising activity, consumer value corrections and double-digit growth of Basic product lines.
The Health and Well Being segment was up 5%, with a 5% increase in unit volume growth. Personal Health Care volume declined mid-single-digits due to increased competitive activity on Prilosec OTC in North America and the impact of a mild cold and flu season on Vicks shipments. However, Oral Care volume grew high-single digits driven by increased initiative activity, including Crest 3D White in North America, Oral-B toothpaste expansions in Latin America and Western Europe and Crest Pro Health in China.
Net sales in the Snacks division declined 2% due to unit volume decline of 6%. The Pet Care segment was down low single-digits mainly due to market contractions in the premium nutrition category.
Margins
Gross margin for the quarter expanded 294 basis points (bps) to 51.9% versus 50.0% 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 80 bps to 20.7% from 19.9% in the prior-year quarter.
Operating cash flow for the quarter increased 15% to $4.9 billion, due to reductions in working capital. The company has a debt to capitalization ratio of 26%. Capital expenditures year-to-date was $1.9 million.
Based on the performance in the first quarter, management revised its guidance for full fiscal 2010. Net sales are now expected to grow in the range of 3% to 5%. Core EPS guidance is to $3.62 to $3.68 from $3.53 to $3.63, reflecting strengthening top-line results and robust cost and productivity efforts.
For the fourth quarter, management expects organic sales growth of 4% to 5%. Foreign exchange is expected to add 2% to sales in the quarter. Net sales are expected to increase 6% to 7% versus the prior year. Core earnings are expected in the range of 68 cents to 74 cents per share.
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