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Procter & Gamble's (PG) Q3 2016 Results - Earnings Call Transcript

Q3 2016 Earnings Conference Call

April 26, 2016 8:30 AM ET

Executives

Jon Moeller – Chief Financial Officer

Analysts

Olivia Tong – Bank of America Merrill Lynch

Stephen Powers – UBS Securities

William Schmitz – Deutsche Bank Securities, Inc.

Lauren Lieberman – Barclays Capital, Inc.

John Faucher – JPMorgan Securities

Nik Modi – RBC Capital Markets

Wendy Nicholson – Citigroup

Dara Mohsenian – Morgan Stanley & Co.

William Chappell – SunTrust Robinson Humphrey, Inc.

Javier Escalante – Consumer Edge Research

Mark Astrachan – Stifel, Nicolaus & Co., Inc.

Joseph Altobello – Raymond James & Associates, Inc.

Jason English – Goldman Sachs & Co.

Ali Dibadj – Sanford C. Bernstein & Co.

Operator

Good morning and welcome to Procter & Gamble's quarter end conference call.

P&G would like to remind you that today's discussion will include a number of forward-looking statements. If you will refer to P&G's most recent 10-K, 10-Q, and 8-K reports, you will see a discussion of factors that could cause the company's actual results to differ materially from these projections.

Also, as required by Regulation G, Procter & Gamble needs to make you aware that during the discussion, the company will make a number of references to non-GAAP and other financial measures. Procter & Gamble believes these measures provide investors with valuable information on the underlying growth trends of the business, and has posted on its website, www.PG.com, a full reconciliation of non-GAAP and other financial measures.

Now I will turn the call over to P&G's Chief Financial Officer, Jon Moeller.

Jon Moeller

Thanks and good morning.

As David Taylor said on the press release we issued earlier this morning, we continue to make progress on the transformation we are making to return P&G's results to a balance of strong top line growth, bottom line growth, and cash generation. We achieved a significant milestone this quarter in the transformation of the product portfolio with the exit of batteries business. We delivered another strong quarter of productivity improvement and cost savings. And we increased investments in innovation, advertising, and selling capacity to enhance our long-term prospects for faster, sustainable top line growth and value creation.

We do continue to operate in a challenging and volatile macro environment. Market growth rates on both a volume and value basis have decelerated, due mainly to slower growth in developing markets. We entered the year expecting the market to grow close to 3% to 4% globally. We now expect 3%.

There are more flashpoints across the globe than at any time in recent memory, with significant economic and political instability impacting incomes and consumption in many large and important markets: Russia, the Ukraine, Egypt, Saudi Arabia and the balance of the Middle East, Turkey, Nigeria, Argentina, Venezuela, Brazil. We generate more than 10% of our annual sales and profit in these markets.

Currencies have weakened across the board since the start of our fiscal year. While the dollar has softened a bit recently, we still face up to $1 billion after-tax net earnings impact versus year ago, a $200 million increase since just the start of December. Across four years, FX has reduced net earnings by about $4 billion after tax, nearly 40% of fiscal year 2012 net earnings.

Against this backdrop, we remain focused on large opportunities in our control, executing what is the largest transformation in our company's history, step-changing cost and cash productivity, transforming our portfolio, strengthening our organization and culture, and reaccelerating top line growth with strength in category business models and innovation plans and, where appropriate, improved value equations. This transformation is aimed at delivering balanced top and bottom line growth and leadership value creation. I'm going to talk briefly about each of those transformation steps, productivity, portfolio, organization, and top line reacceleration, before getting in to the details of the quarter.