Gillette Posts Strong Second Quarter Results

The Gillette Company, Boston, MA, reported net income climbed 27% on a 5% increase in net sales for the second quarter ended June 30. Excluding a one-time gain, net income increased 18%. Strong performance by the Mach3 and Venus shaving systems drove their leading global market shares to record levels, executives said. The company also strengthened its No. 1 share position worldwide in both the manual and power toothbrush sector.

Net sales for the quarter rose to $2.02 billion, up 5% from $1.92 billion in the second quarter of 2001. The increase was paced by strong growth in all regions, except the economically volatile Latin American region. Foreign exchange had no material effect on reported sales, as strength in the euro offset the unfavorable impact of Latin American currencies.

During the second quarter, the company sold its rights in the Vaniqa business, a prescription cream that slows the growth of unwanted facial hair in women. As a result of this sale, the company realized a one-time pretax gain of $30 million, or $21 million aftertax.

Excluding this gain, profit from operations for the quarter was $419 million, 12% above last year, reflecting significant sales growth and cost-savings initiatives. Profit growth was tempered by a 10% increase in advertising and incremental expenses that will fund the first phase of Functional Excellence, a multiyear cost-reduction initiative. The adoption of SFAS 142 resulted in a second-quarter decrease in amortization of about $9 million, compared with a year ago.

Net income rose 27% to $293 million from $232 million in the second quarter of 2001, including the gain related to Vaniqa. Second-quarter net income also benefited from lower interest costs.

“We continue to make good progress in our turnaround efforts. The strength of our brands, the vitality of our market shares and the initial benefits of Zero Overhead Growth cost-saving activities are evident across all our businesses and in the quality of our operating performance,” said James M. Kilts, chairman and chief executive officer.

“New products are driving very solid growth, led by the success of Mach3Turbo, Oral-B battery-powered toothbrushes, Stages manual toothbrushes for children, PowerStripe improvements for our antiperspirants and deodorants and new Braun mid-price electric shavers,” he continued. “While the high level of promotional spending in the battery category remains troubling, we are making progress toward our goal of improving our margins. We also are doing the right things to focus more on consumer benefits and less on promotional activities.”

For the six months ended June 30, net sales rose 6% to $3.76 billion, compared with $3.54 billion in 2001. Unfavorable exchange decreased sales by 1%.

Profit from operations for the first six months climbed 12% to $777 million, compared with $694 million the year before. Excluding the gain on Vaniqa, profit from operations rose 8% to $747 million. Net income of $516 million was 25% above that of the prior year, or excluding the gain on Vaniqa, up 20% to $495 million.

Blade and razor sales climbed 10% to $884 million for the second quarter, and profit was up 19% to $324 million. Results were led by the new Mach3Turbo shaving system and the Mach3 blade franchise continued to deliver outstanding results, with worldwide sales up 18% and global share reaching a record 24%. The Gillette for Women Venus system also posted a strong performance, with worldwide gains in sales and share continuing to surpass expectations.

In the U.S., the Mach3 and Venus brands remained the top sellers, accounting for more than one-third of total consumer sales in the shaving category. For the six months, sales of blades and razors rose 11% to $1.65 billion and profit increased 22% to $612 million.

Oral care sales climbed 8% to $275 million for the quarter, and profit soared 11% to $50 million, fueled by highly successful manual and power product introductions. Growth in manual oral care reflected strong consumer sales of Oral-B Stages children’s toothbrushes in North America, and excellent acceptance of entry-level-priced toothbrushes in Asia and the AMEE markets. The Braun Oral-B battery toothbrush continued its successful rollout in North America and Europe, and the Braun Oral-B 3DExcel rechargeable toothbrush again turned in a strong performance. For the six months, sales of $540 million were up 8% and profit rose 9% to $103 million.

Personal care sales grew 1% to $204 million for the quarter and profit fell 55% to $5 million, due to increased advertising and restructuring of brand franchises. The sales growth was chiefly due to new PowerStripe antiperspirants and deodorants in North America, where Gillette market shares rose to their highest levels in three years, according to executives. For the six months, sales of $382 million rose 3%, while profit was down 17% to $16 million.