PROCTER & GAMBLE Co (PG) Q4 2015 Earnings Summary

Executive Summary

Q4 FY2015: Core EPS $1.00 (+8% YoY; +22% currency-neutral), GAAP diluted EPS $0.18 due to a one-time $2.1B Venezuela charge ($0.71/share) and restructuring costs; net sales $17.8B (-9% YoY), organic sales flat; core operating margin up 90 bps on productivity and pricing .
FY2015: Currency-neutral core EPS up 11%; reported core EPS $4.02; net sales $76.3B (-5%) with FX -6 pts; adjusted FCF productivity 102% and $11.9B returned to shareholders (dividends + buybacks) .
Guidance (FY2016): Organic sales in-line to up low-single digits; all-in sales down low-to-mid single digits; core EPS “slightly below to up mid-single digits” vs restated $3.77 baseline; GAAP EPS up 53–63%; continued FX drag (3–4 pts on EPS), higher tax rate and lower non-op income; FCF productivity 90–100% .
Catalysts: Portfolio reshaping (Coty beauty merger), supply chain transformation, and ongoing productivity (targeting $400–$500M annual supply chain savings) versus FX/macro headwinds and Russia pricing reset (June sales down 57%) .

What Went Well and What Went Wrong

What Went Well
- Margin expansion despite FX: Core operating margin +90 bps YoY to 18.1%; core gross margin +110 bps on cost savings and pricing (ex-FX even stronger) .
- Strong productivity and cash: ~$1.5B COGS savings in FY2015; adjusted FCF productivity 106% in Q4 and 102% for FY; agency/vendor cost cuts of ~$300M in FY2015 .
- Strategic focus and portfolio actions: Coty beauty merger announced; reshaping to 10 categories/65 brands nearly complete, expected to simplify operations and support growth .
- Quote: “We expect to deliver core operating income growth of mid to high single digits… strong underlying operating earnings progress” .
What Went Wrong
- FX and Venezuela: $2.1B non-core write-down moving Venezuela to cost method; GAAP diluted EPS depressed to $0.18; FX -9 pts to Q4 net sales .
- Top-line softness: Q4 organic sales flat; Russia pricing action led to severe short-term volume impacts (June sales down 57%) .
- Non-op/tax headwinds: FY2016 guidance includes 2–3 pts EPS drag from lower non-op income and ~3 pts higher core tax rate (24%) .
- Analyst concerns: Pressure to accelerate growth amid transformation; management acknowledged pacing and priority on value creation rather than chasing low-value volume .

Financial Results

Metric	Q4 2014	Q3 2015	Q4 2015
Net Sales ($USD Billions)	$19.596	$18.142	$17.790
Core EPS ($USD)	$0.93	$0.92	$1.00
GAAP Diluted EPS ($USD)	$0.89	$0.75	$0.18
Core Gross Margin (%)	48.0%	49.5%	49.1%
Core Operating Margin (%)	17.2%	18.7%	18.1%

Segment breakdown (Q4 FY2015):

Segment	Net Sales ($USD Billions)	YoY Change (%)	Net Earnings from Continuing Ops ($USD Millions)
Beauty, Hair & Personal Care	$4.144	-10%	$495
Grooming	$1.692	-18%	$321
Health Care	$1.705	-6%	$173
Fabric & Home Care	$5.321	-7%	$616
Baby, Feminine & Family Care	$4.818	-7%	$662
Corporate	$0.110	-38%	$(1,627)

KPIs (Q4 FY2015):

KPI	Q4 2014	Q3 2015	Q4 2015
Core Tax Rate (%)	18.7%	19.6%	19.1%
Non-Operating Income ($USD Millions)	138	53	438 (GAAP) ; ~$300 core driver vs LY
Adjusted Free Cash Flow ($USD Billions)	N/A	$2.9	$2.9
Adjusted FCF Productivity (%)	N/A	117%	106%

Notes:

Q4 core EPS benefited $0.09 from non-operating income vs prior year; GAAP EPS includes $0.71 Venezuela charge and $0.07 restructuring .
Organic sales flat in Q4; all-in sales -9% with FX -9 pts .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Organic Sales Growth	FY2016	N/A (initial)	In-line to up low-single digits vs FY2015 restated base	N/A
All-in Sales Growth	FY2016	N/A (initial)	Down low-to-mid single digits	N/A
Core EPS Growth vs $3.77	FY2016	N/A (initial)	Slightly below to up mid-single digits	N/A
GAAP EPS Growth	FY2016	N/A (initial)	Up 53%–63% vs $2.44	N/A
FX Headwind on Core EPS	FY2016	N/A	-3% to -4%	N/A
Non-Op Income & Tax Headwind	FY2016	N/A	$0.23–$0.26/share (6–7% EPS impact); tax ~24%	N/A
FCF Productivity	FY2016	N/A	90%–100%	N/A
CapEx	FY2016	N/A	5%–6% of sales	N/A
Share Retirements	FY2016	N/A	~$8–$9B (incl. Duracell exchange)	N/A

Additional baseline clarification: FY2015 core EPS to be restated from $4.02 to ~$3.77 due to classifying transitioning beauty businesses as discontinued operations in FY2016 comparisons .

Earnings Call Themes & Trends

Topic	Q1 FY2015 (Oct 2014)	Q3 FY2015 (Apr 2015)	Q4 FY2015 (Jul 2015)	Trend
FX and Venezuela	Detailed FX mechanics; early Venezuela impacts; constant-currency EPS double-digit	FX drag persisted; constant-currency margins improved; pricing/mix planned	Accounting change to cost method; $2.1B charge; FX remains 3–4 pt EPS headwind FY2016	Ongoing headwind; structural accounting addressed
Supply chain transformation	US mixing centers; global redesign; $1–$2B value opportunity; $400–$600M annual savings target	6 US centers up; Europe consolidation; continued savings	Early stages; plans for WV plant and Utah expansion; 6 new US centers started; $400–$500M annual savings goal	Execution progressing; savings building
Portfolio reshaping	Pet exit; Duracell plan; focusing 70–80 brands	On track to exit ~60% of brands; Coty deal in progress	Coty beauty merger announced; focus on 10 categories, ~65 brands nearly complete	Nearing completion
Product innovation (PODS, FlexBall, Always Discreet)	US category growth; PODS/Flings to $1.5B; FlexBall early success; Discreet expanding	Continued segment growth; category stimulation; expansion	Ongoing investment; cited as drivers for FY2016	Sustained innovation cadence
Regional trends (Russia/Mexico/Japan/China)	Pricing/FX leading to volume offsets; China premiumization needed	Mexico/Japan dynamics; inventory normalization; pricing effects	Russia sales down 57% in June on pricing reset; Mexico sequential improvement; Japan helpful	Volatility; management reprioritizing value over volume
Marketing productivity	Digital shift; non-working spend reductions	Agency spend cuts target up to $0.5B	~$300M agency/production savings in FY2015; further reinvestment	Savings reinvested in working media

Management Commentary

Strategic focus: “We will have focused our portfolio on 10 categories and 65 brands that best leverage our core competencies… As we invest productivity savings and profitable growth, we expect to improve both top and bottom line performance” (A.G. Lafley) .
Cash and margins: “We generated $11.6 billion in adjusted free cash flow… returning $11.9 billion to shareholders… Core operating margin was 19.3%… Productivity savings contributed approximately 330 basis points” (Jon Moeller) .
FY2016 approach: “Prudent to start fiscal 2016… projecting organic sales in line to up low single digits… strong operating margin expansion… FX a 3–4 percentage point drag” (Jon Moeller) .
Supply chain: “We continue to see a $1 billion to $2 billion value creation opportunity… targeting to build over time to annual savings of $400 million to $500 million” (Jon Moeller) .
Value over volume: “The last thing I want to do is chase volume and share that has no value… we’re picking our spots” (A.G. Lafley) .

Q&A Highlights

Growth versus transformation pace: Analysts pressed on top-line weakness; management emphasized long-term value creation, innovation pipeline, and deliberate pricing to restore structural economics in challenged markets (e.g., Russia) .
Investment versus EPS: P&G does not plan to curtail investment to hit EPS; productivity will fund reinvestment in R&D, sales coverage, and supply chain while maintaining balanced TSR .
Portfolio alternatives: Discussion of break-up option; management reiterated comprehensive analysis and preference for focused portfolio delivering most potential value; willingness to change if plans don’t work .
Regional clarifications: Mexico sequential improvement; Japan helpful; Russia saw sharp decline post-pricing; FY2016 tax moving to ~24% normalized range .
Sales execution: Increased dedicated sales resources in growing channels (e-commerce, drug, discounters); shelf simplification tests lifting category and brand sales (e.g., Olay) .

Estimates Context

S&P Global consensus estimates were unavailable due to API limits at time of retrieval; as a result, we cannot assess beat/miss versus Wall Street for Q4 FY2015 or prior quarters [SPGI returned errors while fetching estimates].
Given press release disclosures, core EPS was $1.00 (up 8% YoY) and currency-neutral +22%; organic sales were flat; all-in sales down 9% primarily on FX .

Key Takeaways for Investors

Quality of earnings: Strong core EPS and margin expansion driven by productivity and pricing despite FX; GAAP distortion from Venezuela accounting change does not reflect operational trajectory .
Operational simplification: Portfolio narrowing to 10 categories/65 brands and supply chain redesign should structurally support higher margins and cash conversion over time .
FX/macro risk remains material: Expect continued EPS drag from FX (3–4 pts) and higher tax/non-op headwinds in FY2016; guidance acknowledges wide ranges given volatility .
Discipline on pricing and mix: Will prioritize structural economics and value creation over low-margin volume, accepting near-term top-line pressure in markets like Russia .
Innovation lever intact: Ongoing launches (PODS, beads, FlexBall, Venus Swirl, Always Discreet) continue to stimulate category growth and share in core franchises .
Cash return still robust: Targeting $15–$16B total return (dividends plus share retirement) in FY2016 with FCF productivity 90–100% and CapEx 5–6% of sales .
Watch for execution in Beauty and Grooming: Beauty portfolio re-shape and Olay execution, plus grooming consumer habits and online competition, remain areas to monitor for top-line recovery .