Proctor and Gamble 2007 Annual Report Download - page 40

The Procter & Gamble Company
38 Management’s Discussion and Analysis
Beauty net sales in 2006 increased 7% to $21.1 billion. Sales grew
behind 8% unit volume growth, including a positive 2% impact from
nine months of Gillette personal care results. Volume growth was
driven by initiative activity and expansion of our brands in developing
regions, where volume increased double-digits during the year. Skin
care volume increased double-digits behind continued growth and
initiative activity on the Olay brand. Hair care volume increased high-
single digits behind growth on Pantene, Head & Shoulders and
Rejoice. Feminine care volume grew high-single digits behind new
product innovations on Always/Whisper and continued growth on
Naturella. Cosmetics volume declined due to reduced Max Factor
distribution and a base period on Cover Girl with signicant initiative
pipeline shipments. Foreign exchange had a negative 1% impact on
sales growth. Net earnings increased 13% in 2006 to $3.1 billion
behind sales growth and a 75-basis point net earnings margin
expansion primarily driven by lower overhead expenses as a percentage
of net sales. Margin improvements from scale benets of volume
growth and manufacturing cost savings initiatives offset higher
commodity costs.
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Change vs. Change vs.
(in millions of dollars)  Prior Year* 2006* Prior Year*
Volume  +9% n/a +26%
Net sales  +14% $7,852 +29%
Net earnings  +25% $1,167 +44%
* Fiscal 2006 gures include results of Gillette oral care for the nine months ended June 30, 2006.
Health Care net sales increased 14% in 2007 to $9.0 billion behind a
9% increase in unit volume. Sales and volume were up as a result of
three additional months of Gillette oral care results in the current
scal year and growth on the base P&G business. Health Care organic
sales increased 6% on 4% organic volume growth. Oral care organic
volume grew mid-single digits behind double-digit growth in
developing regions, high-single digit growth on Oral-B and the launch
of Crest Pro-Health toothpaste in North America. Pharmaceuticals
and personal health volume increased low-single digits behind growth
on Prilosec OTC, partially offset by lower volume on Actonel due to
strong competitive activity in the osteoporosis market. Our U.S. market
share on Prilosec OTC increased about 1 point during the year. Pricing,
primarily in pharmaceuticals and personal health, contributed 2%
to segment sales growth. A more premium product mix added an
additional 1% to sales as disproportionate growth on Crest Pro-Health
in North America more than offset the negative impact from higher
relative growth in developing regions. Foreign exchange had a positive
2% impact on sales.
Net earnings grew 25% to $1.5 billion in 2007 behind organic sales
growth, the additional three months of Gillette oral care results and
earnings margin expansion. Earnings margin increased 135-basis points
as lower product costs on our base business and lower SG&A as a
percentage of net sales more than offset the negative mix impact
from the additional three months of the Gillette oral care business in
the current year. SG&A improved primarily due to lower overhead
expenses as a percentage of net sales resulting from volume scale
leverage, Gillette synergy savings and lower research and development
costs in our pharmaceuticals business driven by further leveraging
external R&D networks and higher clinical milestone payments in the
base period.
Health Care net sales in 2006 increased 29% to $7.9 billion. Sales
were up behind 26% unit volume growth, including nine months of
Gillette oral care results. Organic sales grew 9% on 7% organic
volume growth. Pharmaceuticals and personal health organic volume
increased high-single digits behind double-digit growth on Prilosec
OTC and Actonel. Prilosec OTC volume increased as a result of market
share growth and a suppressed base period which included several
months of shipment allocations. Oral care organic volume grew mid-
single digits as a result of market share increases across the globe,
especially in the U.S. and in Central and Eastern Europe. Price
increases, primarily on Actonel and Prilosec OTC, added 2% to sales
growth. Favorable product mix, driven largely by the addition of the
Gillette oral care business, contributed 2% to sales growth. Foreign
exchange had a negative 1% impact on sales growth. Net earnings
increased 44% to $1.2 billion in 2006 behind sales growth and a
150-basis point earnings margin expansion. Net earnings margin
expanded primarily due to lower overhead and marketing spending
as a percentage of net sales.
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
Change vs. Change vs.
(in millions of dollars)  Prior Year 2006 Prior Year
Volume  +8% n/a +8%
Net sales  +11% $17,149 +9%
Net earnings   +18% $ 2,369 +11%
Fabric Care and Home Care net sales increased 11% in 2007 to
$19.0 billion behind 8% unit volume growth. Volume growth was
broad-based across regions with mid-single digit or higher increases
in every region, led by double-digit growth in developing regions.
Volume was up high-single digits in both fabric care and home care
behind product initiatives such as Tide Simple Pleasures, Gain Joyful
Expressions, Febreze Noticeables, upgrades on Swiffer and the launch
of Fairy auto-dishwashing in Western Europe. Our market share in
both fabric care and home care increased by about 1 point globally
during the year. Favorable foreign exchange had a positive 3% impact
on sales.
Net earnings were up 18% to $2.8 billion behind sales growth and a
90-basis point improvement in net earnings margin. Earnings margin
improved behind higher gross margin and lower SG&A as a percentage
of net sales. The gross margin improvement was driven by scale
benets of volume growth and cost savings projects that more than
offset higher commodity costs. SG&A improved behind lower overhead
expenses as a percentage of net sales resulting from volume scale
leverage and Gillette synergy savings.