Proctor and Gamble 2005 Annual Report Download - page 36

Management’s฀Discussion฀and฀AnalysisThe฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries
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basis฀points฀compared฀to฀the฀prior฀year.฀The฀margin฀increased฀
primarily฀ due฀ to฀ the฀ scale฀ benefits฀ of฀ volume฀ growth,฀cost฀฀
reduction฀programs฀and฀the฀impacts฀of฀the฀Company’s฀increased฀฀
ownership฀of฀the฀China฀operation฀and฀the฀Domination฀and฀Profit฀฀
Transfer฀Agreement฀with฀Wella.฀These฀margin฀benefits฀were฀partially฀
offset฀by฀marketing฀spending฀to฀support฀initiatives,฀including฀those฀฀
discussed฀above.
In฀2004,฀P&G฀Beauty฀unit฀volume฀increased฀37%.฀Excluding฀the฀฀
impact฀of฀the฀Wella฀acquisition,฀unit฀volume฀increased฀10%฀behind฀฀
broad-based฀growth฀in฀the฀Hair฀Care,฀Personal฀Beauty฀Care฀and฀฀
Feminine฀ Care฀ businesses.฀ Net฀ sales฀ increased฀ 40%฀ to฀
$17.12฀ billion.฀ Sales฀ growth฀ included฀ a฀ positive฀ foreign฀฀
exchange฀ impact฀of฀4%,฀ partially฀offset฀ by฀ negative฀pricing฀฀
of฀ 1%.฀ Pricing฀ includes฀ actions฀ to฀ support฀ the฀ Hair฀ Care,฀฀
Colorants฀and฀Cosmetics฀businesses฀in฀North฀America฀and฀the฀
Feminine฀Care฀business฀in฀Western฀Europe.฀Overall,฀P&G฀Beauty฀฀
market฀share฀increased,฀as฀sales฀growth฀out-paced฀market฀growth฀
in฀key฀categories฀including฀Skin฀Care,฀Feminine฀Care฀and฀Hair฀Care.฀
Net฀earnings฀increased฀20%฀to฀$2.33฀billion.฀Volume฀benefits,฀฀
including฀the฀addition฀of฀Wella,฀and฀lower฀material฀costs฀were฀฀
partially฀offset฀by฀marketing฀investments฀to฀support฀product฀฀
initiatives฀and฀the฀base฀business.฀Earnings฀margin฀decreased฀due฀to฀
the฀impact฀of฀the฀higher฀SG&A฀expense฀ratio฀for฀Wella.฀The฀Wella฀
acquisition฀was฀accretive฀to฀P&G฀Beauty฀earnings฀and฀had฀no฀฀
material฀impact฀on฀Company฀earnings฀after฀including฀interest฀฀
expense,฀which฀is฀included฀in฀Corporate.฀In฀2003,฀P&G฀Beauty฀net฀sales฀
were฀$12.22฀billion฀and฀net฀earnings฀were฀$1.94฀billion.
P&G฀Family฀Health
Health฀Care.฀Health฀Care฀unit฀volume฀in฀2005฀increased฀10%฀
behind฀double-digit฀growth฀of฀Prilosec฀OTC,฀Actonel฀and฀developing฀
markets.฀Oral฀Care฀posted฀mid-single฀digit฀volume฀growth฀globally฀
despite฀a฀challenging฀competitive฀environment.฀Developing฀market฀
volume฀for฀Oral฀Care฀was฀up฀double-digits,฀while฀developed฀market฀
volume฀decreased฀due฀primarily฀to฀a฀contraction฀of฀the฀U.S.฀tooth฀
whitening฀market.฀Net฀sales฀increased฀11%฀to฀$7.79฀billion฀aided฀
by฀a฀positive฀2%฀foreign฀exchange฀impact.฀Pricing฀in฀Pet฀Health฀and฀
Nutrition฀and฀Pharmaceuticals฀added฀1%฀to฀sales,฀while฀product฀
mix฀reduced฀sales฀by฀2%฀due฀to฀the฀shift฀of฀Macrobid฀branded฀sales฀
to฀generic฀sales฀and฀higher฀relative฀growth฀in฀developing฀markets.฀
Health฀Care’s฀net฀earnings฀were฀$1.00฀billion,฀an฀increase฀of฀8%฀
against฀a฀base฀period฀where฀earnings฀increased฀36%.฀Earnings฀
increased฀primarily฀behind฀volume฀growth.฀After-tax฀earnings฀
margin฀declined฀about฀40฀basis฀points฀year-over-year฀due,฀in฀part,฀
to฀product฀mix฀impacts฀of฀lower฀volume฀in฀Macrobid฀and฀Crest฀
Whitestrips,฀both฀of฀which฀have฀higher฀margins฀than฀the฀balance฀of฀
the฀Health฀Care฀business.฀Earnings฀were฀also฀negatively฀impacted฀by฀
a฀higher฀royalty฀expense฀rate฀for฀Prilosec฀OTC,฀higher฀commodity฀costs฀
and฀marketing฀investments฀in฀support฀of฀initiatives.฀
In฀2004,฀Health฀Care฀unit฀volume฀increased฀18%.฀All฀categories฀grew฀
volume,฀with฀double-digit฀gains฀in฀the฀Pharmaceutical,฀Personal฀Health฀
Care฀and฀Oral฀Care฀businesses,฀as฀well฀as฀solid฀growth฀in฀Pet฀Health฀
and฀Nutrition.฀Net฀sales฀increased฀21%฀to฀$6.99฀billion.฀Foreign฀
exchange฀increased฀sales฀3%.฀Net฀earnings฀increased฀36%฀to฀$925฀
million฀primarily฀driven฀by฀sales฀growth฀behind฀initiatives฀and฀margin฀
expansion฀due฀to฀product฀mix,฀manufacturing฀cost฀savings฀and฀lower฀
overhead฀spending฀as฀a฀percentage฀of฀sales.฀Mix-driven฀margin฀
expansion฀was฀negatively฀impacted฀by฀increased฀marketing฀spending฀
to฀support฀initiatives฀and฀the฀base฀business.฀In฀2003,฀Health฀Care฀net฀
sales฀were฀$5.80฀billion฀and฀net฀earnings฀were฀$678฀million.฀
Baby฀Care฀and฀Family฀Care.฀Baby฀Care฀and฀Family฀Care฀unit฀volume฀฀
in฀2005฀increased฀7%.฀Baby฀Care’s฀unit฀volume฀increased฀upper฀฀
single-digits฀behind฀a฀continued฀stream฀of฀innovation฀including฀Feel฀’n฀
Learn฀training฀pants฀in฀North฀America,฀Baby฀Dry฀fit฀upgrade฀and฀Baby฀
Stages฀of฀Development฀upgrades฀in฀Western฀Europe฀and฀the฀expansion฀
of฀Pampers฀Kandoo.฀Family฀Care฀volume฀increased฀mid-single฀digits฀
driven฀by฀product,฀packaging฀and฀format฀initiatives฀in฀North฀America฀
on฀both฀the฀Bounty฀and฀Charmin฀brands.฀Net฀sales฀increased฀11%฀to฀
$11.89฀billion,฀including฀a฀positive฀3%฀impact฀from฀foreign฀exchange.฀
Pricing฀added฀1%฀to฀sales฀growth฀driven฀primarily฀by฀a฀price฀increase฀in฀
North฀America฀Family฀Care฀to฀recover฀higher฀commodity฀costs,฀partially฀
offset฀by฀targeted฀pricing฀investments฀in฀Western฀Europe฀in฀response฀
to฀competitive฀activity.฀Baby฀Care’s฀global฀share฀increased฀by฀one฀point฀
to฀37%,฀with฀continued฀share฀progress฀in฀both฀North฀America฀and฀
Western฀Europe.฀Family฀Care฀shares฀in฀major฀markets฀were฀up฀modestly฀
compared฀to฀the฀prior฀year฀period.
Net฀earnings฀increased฀28%฀to฀$1.27฀billion฀behind฀volume฀gains฀and฀
an฀increase฀in฀after-tax฀earnings฀margin฀of฀140฀basis฀points฀to฀10.6%.฀
The฀margin฀increase฀was฀driven฀by฀the฀scale฀benefits฀of฀volume,฀pricing฀
in฀North฀America฀Family฀Care฀and฀manufacturing฀cost฀savings฀projects,฀
partly฀offset฀by฀higher฀commodity฀costs฀and฀marketing฀investments฀in฀
support฀of฀initiatives.
In฀2004,฀Baby฀Care฀and฀Family฀Care฀unit฀volume฀increased฀6%.฀Baby฀
Care฀unit฀volume฀increased฀double-digits฀led฀by฀gains฀in฀Western฀
Europe฀and฀developing฀markets.฀Family฀Care฀unit฀volume฀increased฀by฀
mid-single฀digits.฀Net฀sales฀increased฀8%฀to฀$10.72฀billion,฀including฀
a฀positive฀4%฀impact฀due฀to฀foreign฀exchange.฀Sales฀were฀negatively฀
impacted฀by฀pricing฀of฀1%,฀primarily฀due฀to฀increased฀competitive฀
promotional฀activity฀in฀North฀America฀Family฀Care.฀Mix฀reduced฀sales฀
by฀1%฀due฀primarily฀to฀higher฀relative฀Baby฀Care฀growth฀in฀developing฀
markets,฀where฀unit฀sales฀prices฀are฀generally฀lower฀than฀the฀business฀
average.฀Baby฀Care฀and฀Family฀Care฀net฀earnings฀were฀$990฀million฀
in฀2004,฀an฀increase฀of฀13%฀compared฀to฀2003.฀Baby฀Care฀delivered฀฀