07.05.07
1. Procter & Gamble
Cincinnati, OH
513.983.1100
www.pg.com
Sales: $49 billion
Sales:
$49 billion for household, personal care and oral care products. Corporate sales: $68.2 billion. Net income: $8.6 billion for the year ended June 30, 2006.Key Personnel:
A.G. Lafley, chairman, president and chief executive officer; Susan E. Arnold, president, global business units; Robert A. McDonald, chief operating officer; Clayton C. Daley Jr., vice chairman and chief financial officer; Bruce L. Byrnes, vice chairman, global brand building training; Dimitri Panayotopoulos, vice chairman, global household care; Robert A. Steele, vice chairman, global health and well-being; Charles V. Bergh, group president, global personal care; Christopher de Lapuente, group president, global hair care; Hartwig Langer, president, global prestige products; Werner Geissler, vice chairman, global operations.Major Products:
Baby care—Pampers and Luvs wipes; Beauty care—cosmetics, fragrances, hair care, antiperspirants and skin/beauty care marketed under such brands as Gillette, Pantene, Olay, Head & Shoulders, Cover Girl, Clairol Herbal Essences, Max Factor, Hugo Boss, Secret, SK-II, Zest, Safeguard, Rejoice, Vidal Sassoon, Clairol Nice ‘n Easy, Old Spice, Pert, Ivory, Sure, Camay, Laura Biagiotti, Physique, Noxzema, Giorgio and Muse. Fabric and Home care—bleach and pre-wash additives, care for special fabrics, dish care, fabric conditioners, household cleaners and laundry care including brands such as Tide, Ariel, Downy, Lenor, Gain, Cascade, Ace, Cheer, Bold, Swiffer, Bounce, Dash, Dawn, Fairy, Joy, Febreze, Era, Bonux, Dreft, Daz, Vizir, Salvo, Mr. Proper, Mr. Clean, Flash, Viakal, Dryel, Alomatik, Ivory, Maestro Limpio and Rindex. Health care—Crest toothpaste, Scope mouthwash and Thermacare heat pads.
New Products:
Beauty care—Olay Definity illuminating cream cleanser; DDF Skin Care (acquisition); Home care—Cascade Complete with Bleach Hydroclean Action, Tide with Febreze, Gain Joyful Expressions, Bounce with Febreze, Bold Liquid Tabs, Dawn Direct Foam and Febreze Noticeables; Health & Wellness—Crest Nature’s Expressions, Glide Shred Guard floss, Secret Clinical Strength antiperspirant/deodorant. Comments:
Sales continue to surge at P&G. For the third quarter ended March 31, 2007, sales were up 8%. To keep the momentum going, the company this month realigned business units and announced some key executive changes.The company’s three global business units will now be Beauty Care, Global Health & Well Being and Household Care. All units will report to Susan E. Arnold, who has been elected president, global business units. The company has also established the role of chief operating officer to oversee all global operations and functions along with overall responsibility for the go-to-market operational effort. Robert A. McDonald is the new chief operating officer.
“We are making these moves to realign our business units and top leadership structure to meet the changing needs of our larger, more diverse, faster-paced global business,” said A.G. Lafley, chairman, president and chief executive officer. “These changes are designed to help P&G’s businesses consistently win at both the first (in-store) and second (at-home) moments of truth with consumers.
“Our business has nearly doubled since 2000. We’ve had three major acquisitions including Clairol, Wella and Gillette. And, we have tripled the pace of our business initiatives over this same period,” he added.
For the fiscal year ended June 30, 2006, P&G reported a 20% increase in sales, which includes 7% organic growth. The company proudly notes that for the past five years, P&G has led the industry in growth. For example, since 2001 net sales increased 12% a year and organic sales have increased 6% a year. During that time, sales soared from $39 to $68 billion.
Gillette Powers Growth
In fiscal year 2006, the company delivered a fifth consecutive year of net sales growth at or above its target range. Net sales in 2006 increased 20% to $68.2 billion. The company credited the increase to the addition of Gillette and strong growth on the base P&G businesses. Organic sales, which exclude the impacts of acquisitions, divestitures and foreign exchange, increased 7%. Sales growth was broad-based across all regions and driven by growth on key P&G brands, according to the company. Price increases taken across the segments, primarily to offset rising commodity costs, contributed 1% to sales growth. Moreover, the addition of Gillette led to a more premium product mix and more than offset the impact of disproportionate growth in developing regions and contributed 1% to sales growth. Foreign exchange had a negative 1% impact on sales growth during the fiscal year.
Volume increased 19% during the year, driven by the addition of the Gillette business, and strong 6% organic volume growth. P&G said growth was driven by strong consumer-focused marketing programs, successful product innovations, continued expansion in developing markets and a continued focus on big brands and big customers. Each of P&G’s top 16 countries and every geographic region increased organic volume during the year, with developing regions posting double-digit gains. In addition, with the exception of Folger’s (a coffee brand), each of P&G’s billion-dollar brands increased volume during the year. With the addition of Gillette, P&G now has a total of 22 billion-dollar brands.
Net earnings increased 25% during the fiscal year to nearly $8.7 billion. Net earnings increased behind sales growth and a 50-basis point earnings margin improvement. Earnings margin improved across nearly every business segment behind solid volume growth, pricing activity and cost savings programs.
A Beautiful Year
Beauty unit volume increased 8% in 2006, including nine months of Gillette personal care results. Organic volume increased 6%. Volume growth was broad-based across categories and was driven by initiative activity including Pantene Color Expressions, Head & Shoulders brand restage, Olay Regenerist and Olay Ribbons. Growth was also driven by continued expansion in developing re-gions, where unit volume increased double-digits during the year. Unit volume in hair care increas -ed in the high-single digits behind Pantene, Head & Shoulders and Rejoice. Skin care unit volume was up double-digits behind strong results on the Olay brand. Unit volume in cosmetics declined due to more focused Max Factor distribution and a high base period on Cover Girl with significant initiative pipeline shipments. Beauty net sales increased 7% to $21.13 billion in 2006, including a negative 1% foreign exchange impact. Organic sales increased 6%. Net earnings increased 13% to $3.11 billion, driven by sales growth and margin expansion.
Health care unit volume increased 26%, behind 7% organic growth and the impact of nine months of Gillette oral care results. Oral care unit volume increased double-digits behind mid-single digit organic volume growth and the addition of Gillette Oral-B. Oral care organic volume grew behind global market share expansion, particularly behind growth in the U.S. and in developing regions. Net sales in health care grew 29% to $7.85 billion, including nine months of Gillette oral care sales and a negative 1% foreign exchange impact. Organic sales increased 9%. Net earnings increased 44% to $1.17 billion behind the addition of Oral-B, strong organic sales growth and a 150-basis point earnings margin expansion.
Fabric care and home care unit volume grew 8% in 2006. Fabric care growth was broad-based with high single-digit growth and mid-single digit growth in home care. Unit volume growth was driven by market share expansion behind product launches such as Tide with Febreze, Gain Joyful Expressions, Bounce with Febreze, Bold Liquid Tabs, Dawn Direct Foam and Febreze Noticeables. Every region delivered mid-single digit or higher unit volume growth, led by double-digit growth in developing regions. Net sales increased 9% to $17.15 billion, including a negative one percent foreign exchange impact. Price increases, primarily in Latin America fabric care and North America dish care, added 2% to sales growth. Net earnings increased 11% to $2.37 billion as volume growth, price increases and cost savings initiatives more than offset commodity cost increases and increased marketing investments behind initiative activity.
Key Moves in 2007
P&G certainly flourished last year, but the company has acknowledged that there’s still a lot left on the table. P&G has less than 10% of the $350 billion beauty and health care market—a segment that’s growing 5% a year. To improve its position in the fast-growing dermatologist skin care segment, earlier this year, P&G acquired HDS Cosmetics Lab Inc., the company that manufactures and markets Doctor’s Dermatologic Formula (DDF) skin care, from North Castle Partners, a private equity firm. The DDF line of products, designed for specific skin concerns such as anti-aging, acne, hyper-pigmentation and sun protection, are sold in specialty retail and department stores and select spas throughout the U.S. and other countries.
“The addition of DDF to our existing portfolio provides us with the ideal opportunity to reach new consumers in new channels,” said Paolo DeCesare, president, P&G global skin care at the time of the acquisition. “This move also reflects P&G’s corporate strategy to focus on skin care as a key growth category.”
Terms of the transaction were not disclosed, but industry sources estimate DDF’s annual sales at about $40 million.
For the past six months, P&G had been testing concentrated detergent formulas in the midwestern U.S. Apparently, P&G passed the test with flying colors. In September, the company will convert its entire portfolio of liquid laundry detergents to a “2X” concentrated formulation. The move will mean a full replacement of the company’s liquid laundry detergent lineup with a new 50% compacted version, and will include the brands Tide, Gain, Cheer, Era and Dreft. The company will begin the North American rollout of the new compacted detergents in the southern U.S. and Puerto Rico and will complete the full conversion by April 2008 in the Northeast and Canada.
The concentrated detergents are easier to carry, pour and store. The compacted formulas and smaller bottles also allow for increased efficiency across the entire supply chain, including reduced fuel consumption and warehouse space usage, as well as a 22% to 43% reduction in the amount of packaging, and use up to 44% less water than before. A full conversion to 2X concentrated formulas is also consistent with the company’s strong position on sustainability and sustainable development.
“We view sustainability as an opportunity and stimulus to innovate, to improve consumers’ lives, while also making important contributions to environmental quality and society,” said Peter White, director of corporate sustainable development.
Acquisitions, Product Development Propel Profits
P&G expects acquisitions, new product development and novel solutions will help propel sales and profits for years to come. In the third quarter ended March 31, sales rose 8% to nearly $18.7 billion. Gains were driven by double-digit sales growth in fabric and home care, baby and family care, and health care. Beauty and blades and razors posted high single digit growth during the quarter. Organic sales and organic volume both increased 6% for the quarter as foreign exchange contributed 2% to sales.
“Strong results this quarter were driven by the growth of P&G’s leading brands, Gillette synergy benefits and continued cost discipline,” said Mr. Lafley. “Sales growth was at the top-end of our long term target range in a very competitive environment. These results give us confidence to improve our EPS outlook for the fiscal year.”
The company credited double-digit volume increases on Tide, Ariel, Downy, Charmin, Head & Shoulders, Olay, Always and Prilosec OTC. Developing regions set the pace geographically with double-digit organic volume growth, while developed regions grew mid-single digits. Pricing contributed 1% to sales growth but was offset by a negative 1% mix impact. Foreign exchange added an additional 2% to sales growth. Organic sales, which exclude the impacts of acquisitions, divestitures and foreign exchange, increased 6% during the quarter.
Net earnings increased 14% to $2.51 billion behind higher operating profit. Gross margin was down 10-basis points to 51.6% of net sales during the quarter. Volume growth, price increases and cost savings projects added more than 90-basis points to gross margin. These were partially offset by higher commodity costs, which had a negative impact of roughly 50-basis points.
By business sector, beauty net sales increased 8% to $5.62 billion. Skin care, feminine care, hair care and prestige fragrances each reported double-digit sales growth behind Olay Regenerist, Olay Definity, Always, Head & Shoulders, Herbal Essences, Dolce & Gabbana and Hugo Boss. Cosmetics sales increased mid-single digits behind solid results on Cover Girl. The SK-II brand continues to recover from prior period business disruptions in Asia and had a negative impact of roughly 1% on beauty sales. Favorable product mix and pricing each added 1% to sales growth while foreign exchange added an additional 3%. Unit volume increased 3% globally, while organic volume was up 4%. Net earnings in beauty increased 9% to $805 million.
Health care net sales increased 10% to $2.19 billion on 6% volume growth. Oral care volume increased mid-single digits driven by double-digit developing region growth and a three-point increase in U.S. toothpaste market share.
Fabric care and home care net sales increased 12% during the quarter to $4.74 billion. Sales growth was driven by a 10% increase in unit volume. Volume growth was balanced across both fabric care and home care and across regions. Each geographic region delivered high-single digit or better volume growth. Key brands drove the growth with Tide, Ariel, Downy, Swiffer and Cascade each posting double-digit increases. Net earnings increased 21% to $685 million.
Double Digit Gains for Fiscal 2007
Baby care and family care net sales increased 10% to $3.27 billion during the quarter. Unit volume grew 8% with high-single digit growth on both baby care and family care. Baby care volume growth was broad-based, led by double-digit growth in developing regions.
Net sales in blades and razors increased 8% to $1.28 billion behind 4% volume growth. In developing regions, volume increased high-teens behind double-digit growth on Mach 3. Volume in developed regions was down slightly due to the impact of the North America Fusion launch in the year-ago period. Pricing across shaving systems contributed 2% to sales growth but was offset by the negative mix impact of fast growth in developing regions. Foreign exchange added 4% to sales growth. Net earnings were up 11% during the quarter to $294 million behind sales growth and profit margin improvement.
At press time, P&G had not reported fiscal 2007 results, but the company expected to deliver its sixth consecutive year of topline growth at or above its long-term targets. Organic sales were expected to grow 5-6%. Total sales were expected to increase 11-12%.