Proctor and Gamble 2007 Annual Report Download - page 41

The Procter & Gamble Company 39Management’s Discussion and Analysis
Fabric Care and Home Care net sales in 2006 increased 9% to
$17.1 billion driven by an 8% increase in unit volume. Volume growth
was broad-based, with high-single digit growth in fabric care and
mid-single digit growth in home care. Volume growth was driven by
approximately 1 point of market share expansion on both fabric care
and home care behind product innovations such as Tide with Febreze,
Gain Joyful Expressions, Bounce with Febreze, Bold Liquid Tabs, Dawn
Direct Foam and Febreze Noticeables. Every region delivered mid-
single digit or higher volume growth, led by double-digit growth in
developing regions. Price increases, primarily in Latin America fabric
care and North America dish care to offset rising commodity costs,
added 2% to sales growth. Foreign exchange reduced sales by 1%.
Net earnings increased 11% to $2.4 billion in 2006. Earnings margin
improved by 35-basis points as volume scale leverage, price increases
and cost savings initiatives more than offset commodity cost increases.
Overhead and marketing spending increased year-on-year on an
absolute basis, but were down slightly as a percentage of net sales.
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Change vs. Change vs.
(in millions of dollars)  Prior Year 2006 Prior Year
Volume  +5% n/a +3%
Net sales  +6% $11,972 +3%
Net earnings   +11% $ 1,299 +9%
Baby Care and Family Care net sales increased 6% in 2007 to $12.7 billion
behind 5% unit volume growth. Baby care volume grew mid-single
digits with developing regions up double-digits. In developed regions,
baby care volume was up low-single digits as growth on Pampers
Baby Stages of Development and Baby Dry Caterpillar Flex more than
offset softness on Pampers in Western Europe and Luvs in North
America from lower competitor pricing of both branded and private
label products. Family care volume increased mid-single digits behind
product performance upgrades on Bounty and continued growth on
Bounty and Charmin Basic products. Disproportionate growth on
baby care in developing regions and on the Basic tier products, which
have a lower average selling price, led to a negative 1% mix impact.
Favorable foreign exchange contributed 2% to sales growth.
Net earnings in Baby Care and Family Care increased 11% to $1.4 billion
behind sales growth and a 50-basis point improvement in net earnings
margin. Earnings margin increased as lower SG&A as a percentage of
net sales more than offset a reduction in gross margin. Gross margin
was down slightly as manufacturing cost savings and volume scale
leverage were more than offset by the impact of higher pulp costs
and a less protable product mix. SG&A improved as a percentage of
net sales due to lower overhead expenses from volume scale leverage
and a reduction in marketing expenses as a percentage of net sales.
We have reached an agreement to sell our Western European family
care business, which comprises approximately $650 million in segment
net sales. The sale is subject to regulatory approval and is expected to
close in the rst half of scal 2008.
Baby Care and Family Care net sales were up 3% to $12.0 billion in
2006. Unit volume increased 3%, with organic volume up 4%. Baby
care volume increased mid-single digits led by double-digit increases in
developing regions. In developed regions, baby care volume declined
slightly as growth on Pampers Baby Stages of Development and
Kandoo was more than offset by softness on Baby Dry as well as on
Luvs in North America, primarily due to pricing pressure from private
label competitors. Family care organic volume grew mid-single digits,
largely behind growth on the Bounty and Charmin Basic initiative.
Price increases in North America baby care, coupled with a mid-year
increase in North America family care, added 2% to sales growth.
Disproportionate growth in mid-tier products and in developing regions,
where average unit selling price is below the segment average, resulted
in a negative 1% mix impact on segment sales. Foreign exchange also
had a negative 1% impact on sales. Baby Care and Family Care net
earnings increased 9% in 2006 to $1.3 billion behind sales growth
and a 60-basis point earnings margin improvement. Scale benets of
volume growth and price increases more than offset the increase in
commodity and energy costs. In addition, SG&A was down as a
percentage of net sales due to reductions in both 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  +0% n/a +0%
Net sales  +4% $4,383 +2%
Net earnings   +24% $ 385 -13%
Snacks, Coffee and Pet Care net sales increased 4% in 2007 to
$4.5 billion. Unit volume was in line with the prior year as growth in
coffee was offset by a decline in pet care. Snacks volume was in line
with the prior year. Coffee volume was up high-single digits primarily
due to a low base period that included a reduction in the coffee
business from Hurricane Katrina and current period volume from the
launches of Folgers Simply Smooth and Gourmet Selections. Pet care
volume was down mid-single digits versus the year-ago period due
to strong competitive activity and the impacts of a voluntary recall.
In March 2007, we voluntarily recalled certain Iams and Eukanuba wet
pet foods to help ensure maximum pet safety following the discovery
of contaminated materials at a pet food supplier. Price increases in
coffee and favorable product mix from disproportionate coffee growth
each had a positive 1% impact on sales. Foreign exchange had a
positive 2% impact on sales.
Net earnings increased 24% to $477 million. Earnings increased behind
sales growth and base period costs related to Hurricane Katrina,
which more than offset a decline in the current year gross margin
from the impacts of higher commodity costs and expenses associated
with the pet food recall.