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(1) Diluted net earnings per common share are calculated based on net earnings attributable to Procter & Gamble. (2) These results exclude net sales in Corporate. (3) North America includes the United States, Canada and Puerto Rico.
VARIOUS STATEMENTS IN THIS ANNUAL REPORT, including estimates, projections, objectives and expected results, 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 and are generally identified by the words “believe,” “expect,” “anticipate,” “intend,” “opportunity,” “plan,” “project,” “will,” “should,” “could,” “would,” “likely” and similar expressions. Forward-looking statements are based on current assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements, including the risks and uncertainties discussed in Item 1A – Risk Factors of this Annual Report. We undertake no obligation to update or revise publicly any forward-looking statements.
2018 2017 2016 2015 2014
Net Sales $66.8 $65.1 $65.3 $70.7 $74.4
Operating Income $13.7 $14.0 $13.4 $11.0 $13.9
Net Earnings Attributable to P&G $9.8 $15.3 $10.5 $7.0 $11.6
Net Earnings Margin from Continuing Operations 14.8% 15.7% 15.4% 11.7% 14.3%
Diluted Net Earnings per Common Share from Continuing Operations 1 $3.67 $3.69 $3.49 $2.84 $3.63
Diluted Net Earnings per Common Share 1 $3.67 $5.59 $3.69 $2.44 $4.01
Operating Cash Flow $14.9 $12.8 $15.4 $14.6 $14.0
Dividends per Common Share $2.79 $2.70 $2.66 $2.59 $2.45
FINANCIAL HIGHLIGHTS (UNAUDITED) Amounts in billions, except per share amounts
2018 NET SALES BY GEOGRAPHIC REGION
North America 3 44%
Asia Pacific 9%
Greater China 9%
Latin America 7%
India, Middle East & Africa (IMEA) 7%
2018 NET SALES BY BUSINESS SEGMENT 2
Health Care 12%
Fabric & Home Care 32%
Baby, Feminine & Family Care 27%
2018 NET SALES BY MARKET MATURITY
Developed Markets 65%
Developing Markets 35%
Letter to Shareowners i
Five Measures of Noticeable Superiority iv
P&G’s 10-Category Portfolio xii
Form 10-K xiii
Measures Not Defined by U.S. GAAP 74
Company and Shareholder Information 75
Company Leadership 76
Board of Directors 77
Recognition and Commitments 78
Citizenship Inside Back Cover
Table of Contents
Fiscal year 2018 marked an important step toward our goal of sustained, balanced top-line growth, bottom-line growth and cash generation, and leadership levels of value creation for you, our shareowners.
We finished above the top end of our going-in guidance range on core earnings per share, we exceeded our cash targets with another strong year of value returned to shareowners, and while we were slightly below our target on sales growth, we continued to improve market share trends. We did all of this while facing market contractions, currency devaluations, transportation disruptions and trade inventory reductions, as well as rising commodity and freight costs.
Core earnings per share were $4.22, an 8% increase, above the high end of our going-in target range. This includes headwinds from commodity costs which rose throughout the year, as well as benefits from the U.S. Tax Act. All-in GAAP earnings per share were $3.67, a decline of 34% due to a fiscal year 2017 comparison period that includes a substantial earnings gain from the Beauty Brands divestiture and one-time non-core charges related to the U.S. Tax Act in the current year.
We delivered strong free cash flow results, generating $14.9 billion of operating cash flow. Free cash flow was $11.2 billion, with adjusted free cash flow productivity of 104%, well above our target of 90%.
We targeted organic sales growth of 2% to 3% for the fiscal year. We delivered 1%. Collectively, eight of our 10 product categories grew organic sales over 3%. This growth was partially offset by results in Baby Care and Grooming, both of which were down versus the prior year.
A number of our large markets had strong organic sales growth, with China being a bright spot as we continued our strong turnaround there. In China two years ago, organic sales were down 5%. We finished this year up 7%, with accelerated sales growth as the year progressed — 6% in the first half and 8% in the second half, which included 10% organic sales growth in the fourth quarter. Six of seven categories held or grew sales, up from one of seven categories two
years ago. This was significant progress in our second largest market for both sales and profit. In addition, India delivered double-digit organic sales growth, while Mexico and Japan both delivered mid-single- digit organic sales growth.
Importantly, we improved market share trends in seven of our 10 global product categories throughout the year. In our largest countries, eight of the 15 improved versus the prior year, with fourth quarter trends better than fiscal year average in 10 of 15. In the U.S., which accounts for around 40% of sales, all-outlet value share improved from a decline versus prior year in fiscal year 2017 to in-line with prior year in fiscal 2018, improving throughout the year to overall share growth in the April–June quarter.
Our global e-commerce sales were strong, up 30% for the year, and accounted for nearly $4.5 billion of sales — about 7% of our total business. For perspective, this is roughly the size of our two largest e-commerce competitors combined. And we held or built e-commerce value share in eight of 10 product categories.
DAVID S. TAYLOR
Chairman of the Board, President and Chief Executive Officer
* 2017 Advantage Report
All-in sales grew 3%, including a net benefit from the impacts of foreign exchange, acquisitions and divestitures.
We continued to dependably generate cash and return value to you, our shareowners. In total, P&G returned more than $14 billion of value to shareowners. We repurchased approximately $7 billion of stock and paid $7.3 billion in dividends. We increased our dividend by 4%, marking the 62nd consecutive annual increase and the 128th consecutive year P&G has paid a dividend — every year since our incorporation in 1890.
In summary, we grew core earnings per share above our going-in target, we drove cash productivity ahead of target, we returned cash to shareowners, and we improved market share trends. We grew sales, but modestly below our target range. Overall, we made important progress, but we have room to improve on all metrics — especially on top-line growth.
Going forward, our objective remains consistent and clear — balanced top-line growth, bottom-line growth and cash generation that consistently delivers total shareholder return in the top third of our peer group. We’re confident that we have the right strategy and plans in place.
However, we’re operating in a very dynamic environment with changing government policies, geopolitical uncertainties, retail channel transformation, disruption of the media ecosystem, rising input costs and foreign exchange headwinds, and we’re competing against highly capable multinational and local competitors.
That is why we are accelerating change to meet these challenges and further improve results. This will enable us to spot and capitalize on opportunities — and identify and fix issues — faster than we ever have in the past. We will be the disrupters in our industry.
We are doubling down on the strategic choices we’ve made to win with consumers and create value for shareowners. We are investing to improve superiority, our margin of advantage. We are making P&G ever more productive. We are structuring an organization and building a culture to lead change in this dynamic environment.
DRIVING SUPERIORITY ACROSS CHANNELS
We’re focused on growing where consumers shop — whether that’s in-store or online.
This year, P&G grew organic sales 30% in e-commerce, the fastest-growing retail channel around the world.
P&G also provides a superior experience in-store. An independent benchmarking survey* that
measures retailer perceptions of manufacturers across seven key focus areas ranked P&G #1
for the third year in a row.
ii • The Procter & Gamble Company
Always Discreet Before we launched Discreet in the U.S., one in three women stated they experienced adult incontinence, but only one in nine was using a product designed for her needs. Meaningful superiority is driving sales growth in Always Discreet adult incontinence products of more than 25% in fiscal year 2018.
The brand is reaching new record share levels across all markets and contributing to 11 consecutive quarters of organic sales growth in P&G’s Feminine Care category. In the eight markets where we’ve launched Discreet, category growth has accelerated as much as 50%.
Merck KGaA Acquisition P&G’s acquisition of the Consumer Health business of Merck KGaA*— a fast-growing busin