Proctor and Gamble 2005 Annual Report Download - page 37

Management’s฀Discussion฀and฀Analysis The฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries 33
profit฀growth฀from฀higher฀volume฀and฀product฀cost฀savings.฀Family฀
Care฀earnings฀declined฀slightly฀due฀to฀increases฀in฀commodity฀costs฀
(both฀pulp฀and฀natural฀gas)฀and฀increased฀spending฀to฀keep฀prices฀
competitive฀in฀a฀difficult฀market฀environment.฀
P&G฀Household฀Care
Fabric฀Care฀and฀Home฀Care.฀Unit฀volume฀increased฀by฀9%฀in฀Fabric฀
Care฀and฀Home฀Care,฀with฀both฀businesses฀delivering฀upper-single฀
digit฀growth.฀Acquisitions฀in฀Europe฀and฀Latin฀America฀contributed฀
2%฀to฀volume฀growth฀versus฀the฀prior฀year.฀Unit฀volume฀increased฀฀฀
behind฀strong฀initiative฀activity,฀expansion฀of฀the฀portfolio฀to฀serve฀
more฀ consumers฀and฀continued฀ growth฀in฀ developing฀markets.฀฀
Volume฀increased฀behind฀the฀continued฀success฀of฀Lenor,฀Febreze฀฀
Air฀Effects,฀Swiffer฀Duster฀and฀Gain,฀as฀well฀as฀the฀launches฀of฀Tide฀
Coldwater,฀Downy฀Simple฀Pleasures฀and฀Mr.฀Clean฀Magic฀Reach.฀฀
Developing฀markets฀grew฀volume฀by฀double-digits,฀led฀by฀the฀continued฀
success฀of฀Tide฀in฀Greater฀China.฀Net฀sales฀increased฀10%฀to฀$15.26฀
billion.฀Foreign฀exchange฀added฀2%฀to฀sales฀growth.฀The฀mix฀impact฀
of฀higher฀relative฀growth฀in฀developing฀markets฀reduced฀sales฀by฀1%.฀฀
Global฀market฀share฀for฀the฀Fabric฀Care฀business฀was฀up฀slightly฀compared฀
to฀the฀previous฀year฀to฀32%.฀Global฀market฀share฀for฀Home฀Care฀also฀฀
increased฀modestly฀to฀20%.฀In฀Air฀Care,฀Febreze฀earned฀a฀14%฀share฀
of฀the฀instant฀air฀freshener฀market฀behind฀the฀successful฀launch฀of฀฀
Febreze฀Air฀Effects.
Net฀earnings฀were฀$2.13฀billion,฀a฀decrease฀of฀2%฀compared฀to฀the฀
prior฀year.฀After-tax฀earnings฀margin฀decreased฀180฀basis฀points฀due฀
primarily฀to฀higher฀commodity฀costs,฀which฀more฀than฀offset฀the฀scale฀
benefits฀of฀volume฀growth฀and฀pricing฀actions฀in฀certain฀markets.฀฀
Additionally,฀after-tax฀margin฀in฀2005฀was฀lower฀due฀to฀the฀mix฀effect฀
of฀higher฀growth฀rates฀in฀developing฀markets,฀where฀the฀margins฀are฀
lower฀than฀in฀developed฀markets.฀We฀expect฀continued฀margin฀pressure฀
in฀2006฀from฀higher฀commodity฀costs฀and฀growth฀in฀developing฀markets.฀
In฀2004,฀Fabric฀Care฀and฀Home฀Care฀unit฀volume฀increased฀9%฀behind฀
growth฀on฀established฀brands฀such฀as฀Tide,฀Ariel,฀Gain฀and฀Ace฀and฀฀
the฀success฀of฀initiatives฀including฀Mr.฀Clean฀Magic฀Eraser,฀Mr.฀Clean฀
AutoDry,฀Swiffer฀Duster,฀Gain฀Fabric฀Enhancer฀and฀the฀expansion฀of฀฀
Febreze.฀Net฀sales฀increased฀10%,฀to฀$13.87฀billion.฀Sales฀growth฀฀
includes฀a฀positive฀3%฀foreign฀exchange฀impact.฀Negative฀pricing฀
of฀1%฀was฀primarily฀driven฀by฀actions฀to฀maintain฀competitive฀shelf฀฀
pricing฀in฀key฀geographies,฀including฀North฀America฀and฀Western฀฀
Europe.฀Mix฀reduced฀sales฀by฀1%฀driven฀primarily฀by฀double-digit฀
growth฀in฀developing฀markets.฀Net฀earnings฀in฀2004฀increased฀฀
7%฀to฀$2.19฀billion.฀Net฀earnings฀margin฀was฀down฀slightly฀compared฀฀
to฀2003฀due฀to฀the฀mix฀effect฀of฀disproportionate฀growth฀outside฀of฀
the฀U.S.฀(as฀we฀expanded฀our฀business฀in฀certain฀geographies฀including฀฀
China,฀India฀and฀Eastern฀Europe)฀and฀marketing฀investments฀behind฀new฀
product฀initiatives.฀Startup฀costs฀for฀increased฀liquid฀detergent฀capacity฀฀
in฀North฀America฀to฀support฀new฀product฀initiative฀activity฀and฀investments฀฀
in฀supply฀chain฀ optimization฀also฀contributed฀ to฀the฀lower฀ net฀฀
earnings฀margin.
Snacks฀and฀Coffee.฀Snacks฀and฀Coffee฀unit฀volume฀increased฀3%฀฀
compared฀to฀the฀prior฀year.฀Pringles฀volume฀grew฀behind฀expanded฀฀
distribution฀and฀merchandizing฀of฀customized฀flavors฀and฀Pringles฀
Prints฀in฀North฀America.฀Coffee฀volume฀increased฀behind฀custom฀฀
Folgers฀dark฀roasts.฀Folgers฀now฀has฀a฀market฀share฀in฀the฀U.S.฀of฀฀
approximately฀32%.฀Net฀sales฀increased฀8%฀to฀$3.14฀billion.฀Pricing฀฀
increased฀sales฀4%฀due฀primarily฀to฀actions฀on฀Folgers฀to฀recover฀higher฀
commodity฀costs.฀Foreign฀exchange฀had฀a฀positive฀2%฀effect฀on฀sales฀
growth,฀while฀product฀mix฀reduced฀sales฀by฀1%.฀Net฀earnings฀increased฀
21%฀to฀$417฀million฀behind฀higher฀volume,฀pricing฀to฀recover฀commodity฀
costs฀and฀lower฀merchandising฀spending฀versus฀the฀prior฀year.฀After-tax฀฀
earnings฀margin฀increased฀145฀basis฀points฀to฀13.3%.฀
In฀2004,฀unit฀volume฀in฀Snacks฀and฀Coffee฀increased฀6%.฀Net฀sales฀
were฀$2.91฀billion,฀an฀increase฀of฀9%฀compared฀to฀2003.฀Foreign฀฀
exchange฀added฀3%฀to฀sales฀growth.฀Product฀mix฀increased฀sales฀by฀
1%฀primarily฀behind฀higher฀relative฀growth฀of฀Folgers,฀which฀has฀a฀
higher฀unit฀sales฀rate฀than฀the฀segment฀average.฀Pricing฀reduced฀sales฀
by฀1%฀reflecting฀high฀promotional฀spending฀in฀the฀Coffee฀category.฀
Snacks฀and฀Coffee฀net฀earnings฀in฀2004฀were฀$344฀million,฀an฀increase฀
of฀18%,฀as฀volume฀and฀base฀business฀savings฀more฀than฀offset฀higher฀
commodity฀costs.
Corporate฀
Corporate฀includes฀certain฀operating฀and฀non-operating฀activities฀that฀
are฀not฀reflected฀in฀the฀results฀used฀internally฀to฀measure฀and฀evaluate฀
the฀GBUs,฀as฀well฀as฀eliminations฀to฀adjust฀management฀reporting฀
principles฀to฀U.S.฀GAAP.฀Operating฀activities฀in฀Corporate฀include฀the฀
results฀of฀incidental฀businesses฀managed฀at฀the฀corporate฀level,฀certain฀
restructuring฀costs฀and฀the฀elimination฀of฀individual฀revenues฀and฀
expenses฀generated฀by฀companies฀over฀which฀we฀exert฀significant฀
influence,฀but฀do฀not฀control.฀Operating฀elements฀held฀in฀Corporate฀
also฀include฀certain฀employee฀benefit฀costs฀and฀other฀general฀corporate฀
items.฀The฀non-operating฀items฀held฀in฀Corporate฀primarily฀include฀
financing฀and฀investing฀activities.฀Additionally,฀Corporate฀includes฀the฀
historical฀results฀of฀certain฀divested฀businesses,฀including฀the฀Juice฀
business,฀which฀was฀divested฀in฀August฀of฀2004.฀Corporate฀assets฀
primarily฀include฀cash,฀investment฀securities฀and฀goodwill.
Corporate฀net฀sales฀primarily฀reflect฀the฀adjustment฀to฀eliminate฀
the฀sales฀of฀unconsolidated฀entities฀included฀in฀business฀unit฀results.฀
Net฀sales฀reported฀in฀Corporate฀include฀the฀results฀of฀divested฀
businesses฀(e.g.,฀Juice).฀In฀2005,฀Corporate฀net฀earnings฀declined฀due฀
to฀higher฀interest฀expense,฀partially฀offset฀by฀the฀gain฀from฀the฀Juice฀฀
business฀divestiture.฀The฀improvement฀to฀Corporate฀earnings฀in฀2004฀
was฀driven฀primarily฀by฀a฀favorable฀base฀period฀comparison,฀as฀the฀prior฀
year฀included฀restructuring฀program฀charges.฀This฀improvement฀was฀