P&G Announces First Quarter Earnings

Net Sales Unchanged; Organic Sales +3%; Diluted
Net EPS $0.96, +5%; Core EPS $1.03, +5%

CINCINNATI–(BUSINESS WIRE)–The Procter & Gamble Company (NYSE:PG) reported first quarter fiscal
year 2017 net sales of $16.5 billion, unchanged versus the prior year.
Organic sales increased three percent. Organic sales increased in all
five business segments driven by low-to-mid single digit organic volume
growth in all segments. Diluted net earnings per share were $0.96, an
increase of five percent versus the prior year. Core earnings per share
were $1.03, an increase of five percent versus the prior year.
Currency-neutral core EPS increased 12% versus the prior year. Reported
operating profit margin was unchanged. Core operating profit margin
increased 20 basis points as improvement in core gross margin was
partially offset by an increase in core SG&A costs as a percent of net
sales.

Operating cash flow was $3.0 billion for the quarter. Free cash flow
productivity was 85%. The Company repurchased $1 billion of common stock
and returned $1.9 billion of cash to shareholders as dividends.

“Our first quarter results mark a good start to the fiscal year,” said
Chairman, President and Chief Executive Officer David Taylor. “We
delivered broad-based organic sales growth improvement across product
categories and markets, as well as strong cost savings. Earlier this
month, we completed the last major step in P&G’s portfolio
transformation with the Beauty Brands divestiture to Coty Inc. We are
now focusing all our efforts on 10 large, structurally attractive
categories where P&G holds leading positions. We’re pleased with the
progress we’re making, but there is still more work to do to get back to
the levels of balanced top- and bottom-line growth and cash generation
that will consistently put P&G shareholder value creation among the best
in our industry.”

July – September Quarter Discussion

Net sales in the first quarter of fiscal year 2017 were $16.5 billion,
unchanged versus prior year, including a negative three percent impact
from foreign exchange. Organic sales increased three percent driven by a
three percent increase in organic shipment volume. All-in volume
increased two percent including the impacts of minor brand divestitures
and lost sales to Venezuelan subsidiaries.

July – September 2016

   

Foreign

               

Organic

 

Organic

Net Sales Drivers*

Volume

Exchange

Price

Mix

Other**

Net Sales

Volume

Sales

Beauty (2)% (2)% 1% 1% 1% (1)% 2% 3%
Grooming —% (3)% 1% —% 1% (1)% 3% 3%
Health Care 5% (3)% 1% 1% —% 4% 5% 7%
Fabric & Home Care 2% (2)% (1)% 1% 1% 1% 4% 4%
Baby, Feminine & Family Care   3%   (3)%   (1)%   (1)%   1%   (1)%   4%   2%
Total P&G   2%   (3)%   —%   —%   1%   —%   3%   3%

* Net sales percentage changes are approximations based on quantitative
formulas that are consistently applied.
** Other includes the sales
mix impact of acquisitions/divestitures and rounding impacts necessary
to reconcile volume to net sales.

  • Beauty segment organic sales increased three percent versus year ago
    behind higher organic volume and increased pricing in both Hair Care
    and Skin & Personal Care. Organic sales increased in Skin & Personal
    Care due to the continued strong growth of the super-premium SK-II
    brand. Hair Care growth was driven by mid-single-digit organic sales
    growth on both Pantene and Head & Shoulders which was partially offset
    by declines of smaller brands.
  • Grooming segment organic sales increased three percent due to strong
    innovation-driven organic volume growth in both Shave Care and
    Appliances. Organic sales increased low single digits in Shave Care
    and mid-single digits in Appliances.
  • Health Care segment organic sales increased seven percent driven by
    double-digit growth in Personal Health Care from innovation and
    pricing. Oral Care organic sales grew mid-single digits due to
    broad-based volume growth and favorable product mix from power
    toothbrushes and pricing.
  • Fabric & Home Care segment organic sales increased four percent versus
    year ago driven by mid-single-digit growth in both Fabric Care and
    Home Care. Fabric Care organic sales growth was led by high
    single-digit growth in developed markets behind product innovation and
    marketing investments. Home Care delivered mid-single-digit organic
    sales growth in developed and developing markets behind the expansion
    of product innovation.
  • Baby, Feminine & Family Care segment organic sales increased two
    percent driven by mid-single-digit organic volume growth in all three
    businesses. Baby Care organic sales increased low single digits behind
    market growth, product innovation and consumer value corrections.
    Feminine Care organic sales increased low single digits behind
    mid-single-digit volume growth in both developed and developing
    markets. Family Care organic sales increased low single digits driven
    by new product innovation.

Diluted net earnings per share from continuing operations were $1.00, an
increase of four percent over the base period. Diluted net earnings per
share were $0.96, an increase of five percent versus the prior year.
Current year results included a $0.04 per share loss from discontinued
operations and non-core restructuring costs of $0.03 per share. Core
earnings per share, which exclude non-core restructuring charges and the
results of discontinued operations, were $1.03, an increase of five
percent versus the prior year. Excluding the impact of foreign exchange,
currency-neutral core earnings per share increased 12% for the quarter.

Reported gross margin increased 30 basis points, including a 20 basis
point increase in non-core restructuring charges. Core gross margin
improved 50 basis points, including 80 basis points of negative foreign
exchange impacts. On a currency-neutral basis, core gross margin
increased 130 basis points, driven by 190 basis points of productivity
cost savings and 20 basis points of volume growth leverage. These
benefits more than offset headwinds from unfavorable mix, innovation and
capacity investments and commodity cost increases.

Selling, general and administrative expense (SG&A) as a percent of sales
increased 20 basis points on a reported basis versus the prior year,
including a 10 basis point net benefit from a year-on-year decline in
non-core restructuring charges. Core SG&A as a percentage of sales
increased 40 basis points, including 30 basis points of unfavorable
foreign exchange impacts. On a currency-neutral basis, core SG&A was up
10 basis points versus the prior year as increased advertising and
sampling investments were partially offset by productivity savings in
overhead and marketing costs.

Reported operating profit margin was unchanged. Core operating profit
margin increased 20 basis points versus the prior year, including 100
basis points of foreign exchange impacts. On a currency-neutral basis,
core operating profit margin increased 120 basis points driven by
productivity cost savings of 270 basis points for the quarter.

Fiscal Year 2017 Guidance

P&G said it is maintaining its projection for organic sales growth of
approximately two percent for fiscal 2017. The Company expects the
combined headwinds of foreign exchange and minor brand divestitures to
reduce sales growth by about one percentage point. As a result, P&G
continues to estimate all-in sales growth of about one percent for
fiscal 2017.

The Company also maintains its expectation for core earnings per share
growth of mid-single digits versus fiscal 2016 core EPS of $3.67. All-in
GAAP earnings per share are expected to increase 45% to 50% versus
fiscal year 2016 GAAP EPS of $3.69. The fiscal 2017 GAAP EPS estimate
includes approximately $0.10 per share of non-core restructuring costs
and $0.13 per share of charges related to early debt retirement that was
initiated earlier this month. Also included in GAAP EPS is a significant
gain from the divestiture of 41 beauty brands to Coty Inc. The exact
earnings gain from the transaction with Coty, which closed October 1,
2016, will be reported in the second quarter results.

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 generate
sufficient income and cash flow to allow the Company to effect 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 sole supplier and sole manufacturing plant arrangements) and
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
commodity prices, raw materials, labor costs, energy costs and pension
and health care costs; (6) the ability to stay on the leading edge of
innovation, obtain necessary intellectual property protections and
successfully respond to 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,
contractors and external business partners; (11) the ability to rely on
and maintain key information technology systems and networks (including
Company and third-party systems and networks) and maintain the security
and functionality of such systems and networks and the data contained
therein; (12) the ability to successfully manage regulatory and legal
requirements and matters (including, without limitation, those laws and
regulations involving product liability, intellectual property,
antitrust, privacy, tax, accounting standards and environmental) and to
resolve pending matters within current estimates; (13) the ability to
manage changes in applicable tax laws and regulations; (14) the ability
to successfully manage our portfolio optimization strategy, as well as
ongoing acquisition, divestiture and joint venture activities, to
achieve the Company’s overall business strategy, without impacting the
delivery of base business objectives; (15) the ability to successfully
achieve productivity improvements and cost savings and manage ongoing
organizational changes, while successfully identifying, developing and
retaining particularly key employees, especially in key growth markets
where the availability of skilled or experienced employees may be
limited; and (16) the ability to manage the uncertain implications of
the United Kingdom’s withdrawal from the European Union. 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.

About Procter & Gamble

P&G serves consumers around the world with one of the strongest
portfolios of trusted, quality, leadership brands, including Always®,
Ambi Pur®, Ariel®, Bounty®, Charmin®, Crest®, Dawn®, Downy®, Fairy®,
Febreze®, Gain®, Gillette®, Head & Shoulders®, Lenor®, Olay®, Oral-B®,
Pampers®, Pantene®, SK-II®, Tide®, Vicks®, and Whisper®. The P&G
community includes operations in approximately 70 countries worldwide.
Please visit http://www.pg.com for
the latest news and information about P&G and its brands.

 
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per Share Amounts)
Consolidated Earnings Information
   
Three Months Ended September 30
2016   2015   % Chg
NET SALES $ 16,518 $ 16,527 %
COST OF PRODUCTS SOLD 8,102   8,152   (1 )%
GROSS PROFIT 8,416 8,375 %
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 4,645   4,607   1 %
OPERATING INCOME 3,771 3,768 %
INTEREST EXPENSE 131 140 (6 )%
INTEREST INCOME 35 44 (20 )%
OTHER NON-OPERATING INCOME/(LOSS), NET 63   (18 ) N/A
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 3,738 3,654 2 %
INCOME TAXES ON CONTINUING OPERATIONS 863   877   (2 )%
NET EARNINGS FROM CONTINUING OPERATIONS 2,875   2,777   4 %
NET EARNINGS/(LOSS) FROM DISCONTINUED OPERATIONS (118 ) (142 ) N/A
NET EARNINGS 2,757   2,635   5 %
LESS: NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTERESTS 43   34   26 %
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE $ 2,714   $ 2,601   4 %
 
EFFECTIVE TAX RATE 23.1 % 24.0 %
 
BASIC NET EARNINGS PER COMMON SHARE:*
EARNINGS FROM CONTINUING OPERATIONS $ 1.03 $ 0.98 5 %
EARNINGS/(LOSS) FROM DISCONTINUED OPERATIONS $ (0.04 ) $ (0.05 ) N/A
BASIC NET EARNINGS PER COMMON SHARE $ 0.99   $ 0.93   6 %
DILUTED NET EARNINGS PER COMMON SHARE:*
EARNINGS FROM CONTINUING OPERATIONS $ 1.00 $ 0.96 4 %
EARNINGS/(LOSS) FROM DISCONTINUED OPERATIONS $ (0.04 ) $ (0.05 ) N/A
DILUTED NET EARNINGS PER COMMON SHARE $ 0.96   $ 0.91   5 %
DIVIDENDS PER COMMON SHARE $ 0.6700 $ 0.6630
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,822.9 2,867.5
 
COMPARISONS AS A % OF NET SALES Basis Pt Chg
GROSS MARGIN 51.0% 50.7% 30
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 28.1% 27.9% 20
OPERATING MARGIN 22.8% 22.8%
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 22.6% 22.1% 50
NET EARNINGS FROM CONTINUING OPERATIONS 17.4% 16.8% 60
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE 16.4% 15.7% 70

* Basic net earnings per common share and Diluted net earnings per
common share are calculated on Net earnings attributable to Procter &
Gamble.

 
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

(Amounts in Millions)

Consolidated Earnings Information
   
Three Months Ended September 30, 2016
  % Change   Earnings/(Loss) from   % Change   Net Earnings/(Loss)   % Change
Versus Year Continuing Operations Versus Year from Continuing Versus Year
Net Sales   Ago Before Income Taxes Ago Operations   Ago
Beauty $ 2,996 (1 )% $ 783 (5 )% $ 592 (5 )%
Grooming 1,658 (1 )% 529 6 % 415 6 %
Health Care 1,861 4 % 496 11 % 320 1 %
Fabric & Home Care 5,302 1 % 1,129 1 % 728 (3 )%
Baby, Feminine & Family Care 4,595 (1 )% 1,045 (6 )% 697 (7 )%
Corporate 106   (1 )% (244 ) N/A 123   N/A
Total Company $ 16,518   % $ 3,738   2 % $ 2,875   4 %
   
Three Months Ended September 30, 2016
(Percent Change vs. Year Ago)*
Volume with   Volume Excluding          
Acquisitions & Acquisitions & Foreign Net Sales
Divestitures Divestitures Exchange Price Mix Other** Growth
Beauty (2)% 2% (2)% 1% 1% 1% (1)%
Grooming —% 3% (3)% 1% —% 1% (1)%
Health Care 5% 5% (3)% 1% 1% —% 4%
Fabric & Home Care 2% 4% (2)% (1)% 1% 1% 1%
Baby, Feminine & Family Care 3%   4%   (3)%   (1)%   (1)%   1%   (1)%
Total Company 2%   3%   (3)%   —%   —%   1%   —%

* Net Sales percentage changes are approximations based on quantitative
formulas that are consistently applied.
** Other includes the sales
mix impact of acquisitions/divestitures and rounding impacts necessary
to reconcile volume to net sales.

 
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

(Amounts in Millions Except Per Share Amounts)

Consolidated Statements of Cash Flows
   
Three Months Ended September 30
2016     2015
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 7,102 $ 6,836
OPERATING ACTIVITIES
NET EARNINGS 2,757 2,635
DEPRECIATION AND AMORTIZATION 728 731
SHARE-BASED COMPENSATION EXPENSE 44 67
DEFERRED INCOME TAXES (177 ) 89
GAIN ON SALE OF BUSINESSES (75 ) (7 )
GOODWILL AND INTANGIBLE ASSET IMPAIRMENT CHARGES 402
CHANGES IN:
ACCOUNTS RECEIVABLE (424 ) (368 )
INVENTORIES (287 ) (519 )
ACCOUNTS PAYABLE, ACCRUED AND OTHER LIABILITIES 298 298
OTHER OPERATING ASSETS & LIABILITIES 135 141
OTHER 26   69  
TOTAL OPERATING ACTIVITIES 3,025   3,538  
INVESTING ACTIVITIES
CAPITAL EXPENDITURES (684 ) (532 )
PROCEEDS FROM ASSET SALES 183 38
ACQUISITIONS, NET OF CASH ACQUIRED (14 )
PURCHASES OF SHORT-TERM INVESTMENTS (631 ) (494 )
PROCEEDS FROM SALES OF SHORT-TERM INVESTMENTS 243 418
CASH TRANSFERRED TO DISCONTINUED BEAUTY BRANDS BUSINESS (348 )
RESTRICTED CASH RELATED TO BEAUTY BRANDS DIVESTITURE (874 )
CHANGE IN OTHER INVESTMENTS 4   24  
TOTAL INVESTING ACTIVITIES (2,121 ) (546 )
FINANCING ACTIVITIES
DIVIDENDS TO SHAREHOLDERS (1,851 ) (1,865 )
CHANGE IN SHORT-TERM DEBT 1,519 450
ADDITIONS TO LONG-TERM DEBT 891
REDUCTIONS OF LONG-TERM DEBT (1,001 ) (537 )
TREASURY STOCK PURCHASES (1,002 ) (502 )
IMPACT OF STOCK OPTIONS AND OTHER 937   483  
TOTAL FINANCING ACTIVITIES (507 ) (1,971 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (43 ) (152 )
CHANGE IN CASH AND CASH EQUIVALENTS 354   869  
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,456   $ 7,705  
 
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

(Amounts in Millions Except Per Share Amounts)

Condensed Consolidated Balance Sheets
       
September 30, 2016 June 30, 2016
CASH AND CASH EQUIVALENTS $ 7,456 $ 7,102
RESTRICTED CASH 1,870
AVAILABLE-FOR-SALE INVESTMENTS SECURITIES 6,615 6,246
ACCOUNTS RECEIVABLE 4,713 4,373
INVENTORIES 4,999 4,716
DEFERRED INCOME TAXES 1,507
PREPAID EXPENSES AND OTHER CURRENT ASSETS 2,447 2,653
CURRENT ASSETS HELD FOR SALE 7,071   7,185
TOTAL CURRENT ASSETS 35,171 33,782
PROPERTY, PLANT AND EQUIPMENT, NET 19,310 19,385
GOODWILL 44,458 44,350
TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET 24,429 24,527
OTHER NONCURRENT ASSETS 5,675   5,092
TOTAL ASSETS $ 129,043   $ 127,136
 
ACCOUNTS PAYABLE $ 9,024 $ 9,325
ACCRUED AND OTHER LIABILITIES 8,032 7,449
CURRENT LIABILITIES HELD FOR SALE 3,130 2,343
DEBT DUE WITHIN ONE YEAR 12,215   11,653
TOTAL CURRENT LIABILITIES 32,401 30,770
LONG-TERM DEBT 18,910 18,945
DEFERRED INCOME TAXES 8,515 9,113
OTHER NONCURRENT LIABILITIES 10,266   10,325
TOTAL LIABILITIES 70,092   69,153
TOTAL SHAREHOLDERS’ EQUITY 58,951   57,983
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 129,043   $ 127,136
 

The Procter & Gamble Company

Exhibit 1: 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
October 25, 2016 earnings release and the reconciliation to the most
closely related GAAP measure. We believe that these measures provide
useful perspective of 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. 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 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
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. Beginning in 2012
Procter & Gamble began a $10 billion strategic productivity and cost
savings initiative that includes incremental restructuring activities.
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.

We do not view the above item to be part of our sustainable results and
its exclusion from Core earnings measures provides a more comparable
measure of year-on-year results.

Organic sales growth: Organic sales growth
is a non-GAAP measure of sales growth excluding the impacts of
acquisitions, divestitures 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, and this measure is used in assessing
achievement of management goals for at-risk compensation.

Core operating profit margin: Core
operating profit margin is a measure of the Company’s operating margin
adjusted for items as indicated. Management believes this non-GAAP
measure provides a supplemental perspective to the Company’s operating
efficiency over time.

Core gross margin: Core gross margin is a
measure of the Company’s gross margin adjusted for items as indicated.
Management believes this non-GAAP measure provides a supplemental
perspective to the Company’s 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.
Management views these non-GAAP measures as a useful supplemental
measure of Company performance over time.

Free cash flow: Free cash flow is defined
as operating cash flow less capital spending. Free cash flow represents
the cash that the Company is able to generate after taking into account
planned maintenance and asset expansion. Management views free cash flow
as an important measure because it is one factor used in determining the
amount of cash available for dividends and discretionary investment.

Free cash flow productivity: Free cash flow
productivity is defined as the ratio of free cash flow to net earnings.

Contacts

P&G Media Contacts:
Damon
Jones, 513-983-0190
Jennifer Corso, 513-983-2570
or
P&G
Investor Relations Contact
:
John Chevalier,
513-983-9974

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