Procter and Gamble, owner of the Olay, Pantene and Head & Shoulders lines, today announced healthy Q1 results including double-digit earnings growth for its beauty and health care segments.
For the quarter ended 30 September, 2003, the company achieved double-digit volume, sales and earnings growth. Unit volume increased 12 per cent, including the impact of the recently completed acquisition of Wella.
Net sales showed solid growth of 13 per cent to $12.20 billion (€10.39bn) which the company said reflected 'the combination of base business growth, strong innovation and the expansion of developing market businesses'.
For the quarter, net earnings grew 20 per cent to $1.76 billion, primarily driven by volume, the absence of restructuring program charges due to its completion last year - $113 million in July-September 2002 - and lower manufacturing costs. This was partially offset, however, by marketing investments to support base business growth and new initiatives.
Net earnings per share increased 21 per cent to $1.26., although when compared to core results for the base period, net earnings per share grew 13 per cent.
Marketing, Research, Administrative and Other Costs (MRA&O) as a percentage of net sales increased 110 basis points. P&G said this was a reflection of the investments in support of initiatives such as Prilosec OTC, Crest Whitestrips and Night Effects, Olay Regenerist and Swiffer. Approximately one third of the basis point increase was attributed to Wella.
In September, the company completed the previously announced agreement to acquire a majority ownership position in Wella AG. P&G now owns 99 per cent of Wella's outstanding voting shares and 81 per cent of outstanding registered shares.
In the beauty care segment volume increased 21 per cent, including the benefit from acquisitions and divestitures, primarily Wella. Meanwhile, net sales increased 20 per cent to $3.75 billion, including a positive foreign exchange impact of 3 per cent. Negative mix of 3 per cent was driven by the impact of Wella and developing market growth, said P&G.
The segment also recorded an increase in organic sales of 6 per cent, despite heavy competitive activity in North America. P&G said the solid base business results were driven by continued global strength of the Pantene, Head & Shoulders, Always/Whisper and Olay brands. Net earnings for beauty care increased 12 per cent to $616 million driven by volume growth and lower manufacturing costs.
Marketing spending increased to support initiatives, including Pantene Daily Moisture Renewal in Japan, the expansion of Olay Regenerist and continued support of Tampax Pearl, as well as defense against competitive entries in the hair care and skin care categories.
In the fabric and home care segment net sales increased 8 per cent to $3.39 billion. Net earnings increased to $562 million.
Baby and family care saw net sales grow 7 per cent to $2.61 billion, while earnings increased 22 per cent to $295 million, reflecting strong volume growth and lower costs.
Health care was the best performer of the quarter with net sales increasing by 23 per cent to $1.73 billion. Net earnings increased 41 per cent to $276 million on strong volume, sales and margin expansion.
In the next quarter P&G said it expected the Wella acquisition to add sales growth of 6 to 7 per cent. For the fiscal year, total sales are expected to increase by 13 to 16 per cent. Organic sales are expected to increase 5 to 7 per cent.
Commenting on the results, board chairman, president and chief executive A. G. Lafley said: "We're delivering strong sales growth and strong gross margin improvement, which enabled investments in new products like Olay Regenerist and Prilosec OTC. Strong first quarter results give us confidence we will again deliver our fiscal year target of double-digit earnings per share growth."