Forward Looking Statements Certain statements in this release or presentation, other than purely
historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words
“believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking
statements are based on current expectations and assumptions, which are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward-looking statements. We undertake no obligation
to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise.Risks and uncertainties to which our forward-looking statements are subject include, without limitation: (1) the ability
to successfully manage global financial risks, including foreign currency fluctuations, currency exchange or pricing controls and localized volatility; (2) the ability to successfully manage local, regional or global economic volatility,
including reduced market growth rates, and to generate sufficient income and cash flow to allow the Company to affect the expected share repurchases and dividend payments; (3) the ability to manage disruptions in credit markets or changes to
our credit rating; (4) the ability to maintain key manufacturing and supply arrangements (including execution of supply chain optimizations and sole supplier and sole manufacturing plant arrangements) and to manage disruption of business due to
factors outside of our control, such as natural disasters and acts of war or terrorism; (5) the ability to successfully manage cost fluctuations and pressures, including prices of commodities and raw materials, and costs of labor,
transportation, energy, pension and healthcare; (6) the ability to stay on the leading edge of innovation, obtain necessary intellectual property protections and successfully respond to changing consumer habits and technological advances
attained by, and patents granted to, competitors; (7) the ability to compete with our local and global competitors in new and existing sales channels, including by successfully responding to competitive factors such as prices, promotional
incentives and trade terms for products; (8) the ability to manage and maintain key customer relationships; (9) the ability to protect our reputation and brand equity by successfully managing real or perceived issues, including concerns about
safety, quality, ingredients, efficacy or similar matters that may arise; (10) the ability to successfully manage the financial, legal, reputational and operational risk associated with third-party relationships, such as our suppliers, contract
manufacturers, distributors, contractors and external business partners; (11) the ability to rely on and maintain key company and third party information technology systems, networks and services, and maintain the security and functionality of
such systems, networks and services and the data contained therein; (12) the ability to successfully manage uncertainties related to changing political conditions (including the United Kingdom’s decision to leave the European Union) and
potential implications such as exchange rate fluctuations and market contraction; (13) the ability to successfully manage regulatory and legal requirements and matters (including, without limitation, those laws and regulations involving product
liability, product and packaging composition, intellectual property, antitrust, data protection, tax, environmental, and accounting and financial reporting) and to resolve pending matters within current estimates; (14) the ability to manage
changes in applicable tax laws and regulations including maintaining our intended tax treatment of divestiture transactions; (15) the ability to successfully manage our ongoing acquisition, divestiture and joint venture activities, in each case
to achieve the Company’s overall business strategy and financial objectives, without impacting the delivery of base business objectives; and (16) the ability to successfully achieve productivity improvements and cost savings and manage ongoing
organizational changes, while successfully identifying, developing and retaining key employees, including in key growth markets where the availability of skilled or experienced employees may be limited. For additional information concerning
factors that could cause actual results and events to differ materially from those projected herein, please refer to our most recent 10-K, 10-Q and 8-K reports.
The Procter & Gamble Company Regulation G Reconciliation of Non-GAAP Measures
In accordance with the SEC's Regulation G, the following provides definitions of the non-GAAP measures used in Procter & Gamble's July 30, 2019 earnings call, associated slides, and other materials and the
reconciliation to the most closely related GAAP measure. We believe that these measures provide useful perspective on underlying business trends (i.e. trends excluding non-recurring or unusual items) and results and provide a supplemental measure
of year-on-year results. The non-GAAP measures described below are used by Management in making operating decisions, allocating financial resources and for business strategy purposes. These measures may be useful to investors as they provide
supplemental information about business performance and provide investors a view of our business results through the eyes of management. Certain of these measures are also used to evaluate senior management and are a factor in determining their
at-risk compensation. These non-GAAP measures are not intended to be considered by the user in place of the related GAAP measure, but rather as supplemental information to our business results. These non-GAAP measures may not be the same as
similar measures used by other companies due to possible differences in method and in the items or events being adjusted. The Company is not able to reconcile its forward-looking non-GAAP cash flow and effective tax rate measures because the
Company cannot predict the timing and amounts of discrete items such as acquisition and divestitures, which could significantly impact GAAP results.
The measures provided are as follows:
|
1.
|
Organic sales growth — page 3
|
|
2.
|
Core EPS and currency-neutral Core EPS — page 5
|
|
3.
|
Core gross margin and currency-neutral Core gross margin — page 7
|
|
4.
|
Core operating profit margin and currency-neutral Core operating profit margin — page 7
|
|
5.
|
Adjusted free cash flow productivity — page 8
|
Organic sales growth*:
Organic sales growth is a non-GAAP measure of sales growth excluding the impacts of acquisitions and divestitures, the impact from the July 1, 2018 adoption of new
accounting standards for “Revenue from Contracts with Customers”, the impact from India Goods and Services Tax changes (which were effective on July 1, 2017), the impact of Venezuela deconsolidation in FY 2016, and foreign exchange from
year-over-year comparisons. Management believes this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent basis.
The Core earnings measures included in the following reconciliation tables refer to the equivalent GAAP measures adjusted as applicable for the following items:
|
•
|
Incremental restructuring:
The Company has had and continues to have an ongoing level of restructuring activities. Such activities have resulted in ongoing annual restructuring related charges of
approximately $250 - $500 million before tax. In 2012 the Company began a $10 billion strategic productivity and cost savings initiative that included incremental restructuring activities. In 2017, the Company communicated details of an
additional multi-year productivity and cost savings plan. This results in incremental restructuring charges to accelerate productivity efforts and cost savings. The adjustment to Core earnings includes only the restructuring costs above
what we believe are the normal recurring level of restructuring costs.
|
|
•
|
Early debt extinguishment charges
: In fiscal 2018, the Company recorded after-tax charges of $243 million, due to the early extinguishment of certain long-term debt. These charges represent the
difference between the reacquisition price and the par value of the debt extinguished.
|
|
•
|
Gain on Dissolution of the PGT Healthcare Partnership:
The Company dissolved our PGT Healthcare partnership, a venture between the Company and Teva Pharmaceuticals Industries, Ltd (Teva) in the OTC
consumer healthcare business, during the year ended June 30, 2019. The transaction was accounted for as a sale of the Teva portion of the PGT business; the Company recognized an after-tax gain on the dissolution of $353 million.
|
|
•
|
Transitional Impact of U.S. Tax Reform
: In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "U.S. Tax Act"). This resulted
in a net charge of $602 million for the fiscal year 2018. The adjustment to Core earnings only includes this transitional impact. It does not include the ongoing impacts of the lower U.S. statutory rate on current year earnings.
|
|
•
|
Charges for Certain European legal matters
: Several countries in Europe issued separate complaints alleging that the Company, along with several other companies, engaged in violations of competition
laws in prior periods. In 2016, the Company incurred after-tax charges of $11 million to adjust legal reserves related to these matters.
|
|
•
|
Venezuela deconsolidation charges
: For accounting purposes, evolving conditions resulted in a lack of control over our Venezuelan subsidiaries. Therefore, in accordance with the applicable accounting
standards for consolidation, effective June 30, 2015, we deconsolidated our Venezuelan subsidiaries and began accounting for our investment in those subsidiaries using the cost method of accounting. The charge was incurred to write off
our net assets related to Venezuela.
|
|
•
|
Venezuela B/S remeasurement & devaluation impacts
: Venezuela is a highly inflationary economy under U.S. GAAP. Prior to deconsolidation, the government enacted episodic changes to currency exchange
mechanisms and rates, which resulted in currency remeasurement charges for non-dollar denominated monetary assets and liabilities held by our Venezuelan subsidiaries.
|
|
•
|
Shave Care Impairment
: In the fourth quarter of fiscal 2019, the company recognized a one-time, non-cash, after-tax charge of $8.0 billion ($8.3 billion before tax) to adjust the carrying values of the
Shave Care reporting unit. This was comprised of a before and after-tax impairment charge of $6.8 billion related to goodwill and an after-tax impairment charge of $1.2 billion ($1.6 billion before tax) to reduce the carrying value of the
Gillette indefinite-lived intangible assets.
|
|
•
|
Anti-dilutive Impacts:
The Shave Care impairment charges caused certain equity instruments that are normally dilutive (and hence normally assumed converted or exercised for the purposes of determining
diluted net earnings per share) to be anti-dilutive. Accordingly, for U.S. GAAP diluted earnings per share, these instruments were not assumed to be concerted or exercised. Specifically, in the fourth quarter and total fiscal 2019, the
weighted average outstanding preferred shares were not included in the diluted weighted average common shares outstanding. Additionally, in the fourth quarter of fiscal 2019, none of our outstanding share-based equity awards were included
in the diluted weighted average common shares outstanding. As a result of the non-GAAP Shave Care impairment adjustment, these instruments are dilutive for non-GAAP earnings per share.
|
We do not view the above items to be part of our sustainable results, and their exclusion from core earnings measures provides a more comparable measure of year-on-year results. These items are also excluded when
evaluating senior management in determining their at-risk compensation. Management views the following non-GAAP measures as useful supplemental measures of Company performance and operating efficiency over time.
Core EPS and currency-neutral Core EPS*:
Core earnings per share, or Core EPS, is a measure of the Company's diluted net earnings per share from continuing operations adjusted as indicated.
Currency-neutral Core EPS is a measure of the Company's Core EPS excluding the incremental current year impact of foreign exchange.
Core gross margin:
Core gross margin is a measure of the Company's gross margin adjusted for items as indicated.
Currency-neutral Core gross margin:
Currency-neutral Core gross margin is a measure of the Company's Core gross margin excluding the incremental current year impact of foreign exchange.
Core operating profit margin*:
Core operating profit margin is a measure of the Company's operating margin adjusted for items as indicated.
Currency-neutral Core operating profit margin*:
Currency-neutral Core operating profit margin is a measure of the Company's Core operating profit margin excluding the incremental current year
impact of foreign exchange.
Free cash flow and Adjusted free cash flow:
Free cash flow is defined as operating cash flow less capital spending. Adjusted free cash flow is defined as free cash flow adjusted for items as
indicated. Adjusted free cash flow represents the cash that the Company is able to generate after taking into account planned maintenance and asset expansion. Management views adjusted free cash flow as an important measure because it is one
factor used in determining the amount of cash available for dividends, share repurchases, acquisitions and other discretionary investment.
Adjusted free cash flow productivity*:
Adjusted free cash flow productivity is defined as the ratio of adjusted free cash flow to net earnings adjusted for items as indicated. Management views
adjusted free cash flow productivity as a useful measure to help investors understand P&G’s ability to generate cash. Adjusted free cash flow productivity is used by management in making operating decisions, allocating financial resources and
for budget planning purposes. The Company's long-term target is to generate annual free cash flow productivity at or above 90 percent.
* Measure is used to evaluate senior management and is a factor in determining their at-risk compensation.
1.
Organic sales growth:
|
Three Months Ended
June 30, 2019
|
Net Sales Growth
|
|
Foreign Exchange Impact
|
|
Acquisition &
Divestiture Impact/Other
(1)
|
|
Organic Sales Growth
|
|
Beauty
|
3%
|
|
5%
|
|
-%
|
|
8%
|
|
Grooming
|
(3)%
|
|
6%
|
|
1%
|
|
4%
|
|
Health Care
|
13%
|
|
4%
|
|
(7)%
|
|
10%
|
|
Fabric Care & Home Care
|
5%
|
|
4%
|
|
1%
|
|
10%
|
|
Baby, Feminine & Family Care
|
1%
|
|
4%
|
|
-%
|
|
5%
|
|
Total P&G
|
4%
|
|
4%
|
|
(1)%
|
|
7%
|
|
Total Company
|
Net Sales Growth
|
|
Foreign Exchange Impact
|
|
Acquisition &
Divestiture Impact/Other
(1)
|
|
Organic Sales Growth
|
|
FY 2019
|
1%
|
|
4%
|
|
-%
|
|
5%
|
(1)
Acquisition & Divestiture Impact/Other includes
the volume and mix impact of acquisitions and divestitures, the impact from the July 1, 2018 adoption of new accounting standards for "Revenue from Contracts with Customers" and rounding impacts necessary to reconcile net sales to organic sales.
Organic Sales
Prior Fiscal Years
|
Total Company
|
Net Sales Growth
|
|
Foreign Exchange Impact
|
|
Acquisition/ Divestiture Impact/Other*
|
|
Organic Sales Growth
|
|
FY 2018
|
3%
|
|
(2)%
|
|
-%
|
|
1%
|
|
FY 2017
|
-%
|
|
2%
|
|
-%
|
|
2%
|
|
FY 2016
|
(8)%
|
|
6%
|
|
3%
|
|
1%
|
* Acquisition & Divestiture Impact/Other includes the volume and
mix impact of acquisitions and divestitures for all periods, the impact of India Goods and Services Tax implementation in FY 2018, the impact of Venezuela deconsolidation in 2016, and rounding impacts necessary to reconcile net sales to organic
sales.
Organic Sales
Prior Quarters
|
Total Company
|
Net Sales Growth
|
|
Foreign Exchange Impact
|
|
Acquisition/ Divestiture Impact/Other*
|
|
Organic Sales Growth
|
|
JAS 2017
|
1%
|
|
-%
|
|
-%
|
|
1%
|
|
OND 2017
|
3%
|
|
(1)%
|
|
-%
|
|
2%
|
|
JFM 2018
|
4%
|
|
(4)%
|
|
1%
|
|
1%
|
|
AMJ 2018
|
3%
|
|
(2)%
|
|
-%
|
|
1%
|
|
JAS 2018
|
-%
|
|
3%
|
|
1%
|
|
4%
|
|
OND 2018
|
-%
|
|
4%
|
|
-%
|
|
4%
|
|
JFM 2019
|
1%
|
|
5%
|
|
(1%)
|
|
5%
|
* Acquisition & Divestiture Impact/Other includes the volume and
mix impact of acquisitions and divestitures for all periods, the impact from the July 1, 2018 adoption of new accounting standards for "Revenue from Contracts with Customers", the impact of India Goods and Services Tax implementation in FY 2018
and rounding impacts necessary to reconcile net sales to organic sales.
Organic Sales
2-Year Average Growth Rates
|
Total Company
|
Net Sales Growth
|
|
Combined Foreign Exchange &
Acquisition/Divestiture Impact/Other*
|
|
Organic Sales Growth
|
|
2-Year Average
|
|
FY 2020 (Estimate)
|
+3 to +4%
|
|
-%
|
|
+3% to +4%
|
|
+4 to +4.5%
|
|
FY 2019
|
1%
|
|
4%
|
|
5%
|
|
3%
|
|
FY 2018
|
3%
|
|
(2)%
|
|
1%
|
|
|
*
Acquisition
& Divestiture Impact/Other includes the volume and mix impact of acquisitions and divestitures for all periods, the impact from the July 1, 2018 adoption of new accounting standards for "Revenue from Contracts with Customers", the impact of
India Goods and Services Tax implementation in FY 2018, and rounding impacts necessary to reconcile net sales to organic sales.
Organic
Sales
Guidance
|
Total Company
|
|
Net Sales Growth
|
|
Combined Foreign Exchange &
Acquisition/Divestiture Impact/Other*
|
|
Organic Sales Growth
|
|
FY 2020 (Estimate)
|
|
+3% to +4%
|
|
-%
|
|
+3% to +4%
|
* Acquisition & Divestiture Impact/Other includes the volume and mix impact of acquisitions and divestitures and rounding impacts necessary to reconcile net sales to organic sales.
2.
Core EPS and currency-neutral Core EPS:
|
|
Three Months Ended
June 30
|
|
|
2019
|
|
2018
|
|
Diluted Net Earnings/(Loss) Per Share
|
$(2.12)
|
|
$0.72
|
|
Incremental Restructuring
|
0.06
|
|
0.14
|
|
Transitional Impact of U.S Tax Reform
|
|
|
(0.02)
|
|
Early Debt Extinguishment
|
|
|
0.09
|
|
Shave Care Impairment
|
3.02
|
|
|
|
Anti-dilutive Impacts
|
0.14
|
|
|
|
Rounding
|
|
|
0.01
|
|
Core EPS
|
$1.10
|
|
$0.94
|
|
Percentage change vs. prior period
|
17%
|
|
|
|
Currency Impact to Earnings
|
0.08
|
|
|
|
Currency-Neutral Core EPS
|
$1.18
|
|
|
|
Percentage change vs. prior period Core EPS
|
26%
|
|
|
Note – All reconciling items are presented net of tax. Tax effects are calculated consistent with the nature of the underlying transaction.
|
|
Twelve Months Ended
June 30
|
|
|
2019
|
|
2018
|
|
Diluted Net Earnings Per Share
|
$1.43
|
|
$3.67
|
|
Incremental Restructuring
|
0.13
|
|
0.23
|
|
Early Debt Extinguishment
|
|
|
0.09
|
|
Transitional Impact of U.S Tax Reform
|
|
|
0.23
|
|
Gain on PGT Dissolution
|
(0.13)
|
|
|
|
Shave Care Impairment
|
3.03
|
|
|
|
Anti-dilutive Impacts
|
0.06
|
|
|
|
Core EPS
|
$4.52
|
|
$4.22
|
|
Percentage change vs. prior period
|
7%
|
|
|
|
Currency Impact to Earnings
|
0.35
|
|
|
|
Currency-Neutral Core EPS
|
$4.87
|
|
|
|
Percentage change vs. prior period Core EPS
|
15%
|
|
|
Note – All reconciling items are presented net of tax. Tax effects are calculated consistent with the nature of the underlying transaction.
Core EPS
Prior Quarters
|
|
AMJ 18
|
AMJ 17
|
JAS 18
|
JAS 17
|
OND 18
|
OND 17
|
JFM 19
|
JFM 18
|
|
Diluted Net Earnings Per Share from Continuing Operations, attributable to P&G
|
$ 0.72
|
$ 0.82
|
$ 1.22
|
$ 1.06
|
$ 1.22
|
$ 0.93
|
$ 1.04
|
$ 0.95
|
|
Incremental Restructuring
|
0.14
|
0.02
|
0.03
|
0.03
|
0.03
|
0.02
|
0.02
|
0.04
|
|
Early Debt Extinguishment Charges
|
0.09
|
|
|
|
|
-
|
|
|
|
Transitional Impact of U.S. Tax Act
|
(0.02)
|
|
|
|
|
0.24
|
|
0.01
|
|
Gain on Dissolution of PGT Partnership
|
|
|
(0.14)
|
|
|
|
|
|
|
Rounding
|
0.01
|
0.01
|
0.01
|
|
|
|
|
|
|
Core EPS
|
$ 0.94
|
$ 0.85
|
$ 1.12
|
$ 1.09
|
$ 1.25
|
$ 1.19
|
$ 1.06
|
$ 1.00
|
|
Percentage change vs. prior period
|
11%
|
|
3%
|
|
5%
|
|
6%
|
|
|
Currency Impact to Earnings
|
0.01
|
|
0.09
|
|
0.09
|
|
0.09
|
|
|
Currency-Neutral Core EPS
|
$ 0.95
|
|
$ 1.21
|
|
$ 1.34
|
|
$ 1.15
|
|
|
Percentage change vs. prior period Core EPS
|
12%
|
|
11%
|
|
13%
|
|
15%
|
|
Core EPS
Prior Fiscal Years
|
|
2018
|
2017
|
2016
|
2015
|
|
Diluted Net Earnings Per Share from Continuing Operations, attributable to P&G
|
$ 3.67
|
$ 3.69
|
$ 3.49
|
$ 2.84
|
|
Incremental Restructuring
|
0.23
|
0.10
|
0.18
|
0.17
|
|
Early Debt Extinguishment Charges
|
0.09
|
0.13
|
|
|
|
Transitional Impact of U.S. Tax Act
|
0.23
|
|
|
|
|
Venezuela B/S Remeasurement and Devaluation Impacts
|
|
|
|
0.04
|
|
Charges for Pending European Legal Matters
|
|
|
|
0.01
|
|
Venezuela Deconsolidation Charges
|
|
|
|
0.71
|
|
Rounding
|
|
|
|
(0.01)
|
|
Core EPS
|
$ 4.22
|
$ 3.92
|
$ 3.67
|
$3.76
|
|
Percentage change vs. prior period
|
8%
|
7%
|
(2)%
|
|
|
Currency Impact to Earnings
|
(0.05)
|
0.15
|
0.35
|
|
|
Currency-Neutral Core EPS
|
$ 4.17
|
$ 4.07
|
$ 4.02
|
|
|
Percentage change vs. prior period Core EPS
|
6%
|
11%
|
7%
|
|
Core EPS
Guidance
|
Total Company
|
Diluted EPS Growth
|
Impact of Change in Non-Core Items*
|
Core EPS Growth
|
|
FY 2020 (Estimate)
|
+222% to +240
|
(218)% to (231)%
|
+4% to +9%
|
* Includes the Shave Care Impairment charge in FY 2019, gain on the
dissolution of the PGT Healthcare partnership in FY 2019 and year-over-year changes in incremental non-core restructuring charges.
3. Core gross margin and currency-neutral Core gross margin:
|
|
Three Months Ended
June 30
|
|
|
2019
|
2018
|
|
Gross Margin
|
47.7%
|
45.0%
|
|
Incremental Restructuring
|
1.1%
|
2.6%
|
|
Core Gross Margin
|
48.8%
|
47.6%
|
|
Basis point change vs. prior year Core margin
|
120
|
|
|
Currency Impact to Margin
|
0.4%
|
|
|
Currency-Neutral Core Gross Margin
|
49.2 %
|
|
|
Basis point change vs prior year Core margin
|
160
|
|
4. Core operating profit margin and currency-neutral Core operating profit margin:
|
|
Three Months Ended
June 30
|
|
|
2019
|
2018
|
|
Operating Profit Margin
|
(30.4)%
|
15.7%
|
|
Incremental Restructuring
|
1.1%
|
2.6%
|
|
Shave Care Impairment
|
48.8%
|
|
|
Rounding
|
0.1%
|
|
|
Core Operating Profit Margin
|
19.6%
|
18.3%
|
|
Basis point change vs. prior year Core margin
|
130
|
|
|
Currency Impact to Margin
|
0.8%
|
|
|
Currency=Neutral Core Operating Profit Margin
|
20.4%
|
|
|
Basis point change vs. prior year Core margin
|
210
|
|
4. Adjusted free cash flow productivity (dollar amounts in millions):
|
Three Months Ended June 30, 2019
|
|
Operating Cash Flow
|
Capital Spending
|
Free Cash Flow
|
Net Earnings
|
Adjustments to Net Earnings*
|
Adjusted Net Earnings
|
Adjusted Free Cash Flow Productivity
|
|
$4,151
|
$(814)
|
$3,337
|
$(5,237)
|
$7,978
|
$2,741
|
122%
|
*Adjustments to Net Earnings relate to the Shave Care impairment charge.
|
Twelve Months Ended June 30, 2019
|
|
Operating Cash Flow
|
Capital Spending
|
U.S. Tax Act Payments
|
Adjusted Free Cash Flow
|
Net Earnings
|
Adjustments to Net Earnings*
|
Adjusted Net Earnings
|
Adjusted Free Cash Flow Productivity
|
|
$15,242
|
$(3,347)
|
$235
|
$12,130
|
$3,966
|
$7,625
|
$11,591
|
105%
|
*Adjustments to Net Earnings relate to the gain on the dissolution of the PGT joint venture and the Shave Care impairment charge.
