Gross margin was up 10-basis points to 52.9% of net sales during the quarter. Higher commodity costs had a negative impact of approximately 80- basis points. These were more than offset by volume leverage, cost savings projects and pricing.
Selling, general and administrative expenses (SG&A) were 31.0% of net sales, 20-basis points lower than the prior year period.
Overhead spending as a percent of net sales was down due to overhead cost controls, Gillette synergies and volume scale leverage. This more than offset higher marketing spending as a percent of net sales to support key brands across the globe.
Operating cash flow was $3.2 billion, an increase of nine percent versus the base period. Working capital used $220 million more cash versus the base period, primarily due to business growth.
Free cash flow as a percentage of net earnings was 87%, roughly in-line with the year-ago level. Capital expenditures were 2.7% of net sales during the quarter.
The company repurchased $2.6 billion of P&G stock during the quarter as part of the company's previously announced share repurchase program. The company began purchasing shares under this program in July 2007.
For the 2008 fiscal year, the company expects organic sales to grow by four to six percent, in line with its long term target range. The combination of pricing and product mix is expected to have a neutral to positive one percent impact on sales growth.
Foreign exchange is expected to have a positive impact of about three percent. The net impact of acquisitions and divestitures is estimated to have a negative one percent impact on sales growth.
Total sales are expected to increase six to eight percent. This is an increase of one percent versus the company's previous guidance range due to the increased foreign exchange outlook.
The company also raised its earnings per share outlook by $0.02 for the fiscal year to reflect a one-time tax benefit. The company now expects earnings per share to be in the range of $3.46 to $3.49, up 14 to 15 percent versus the prior year.
Operating margins are expected to improve by 50 to 100-basis points driven by lower overhead costs as a percent of sales and modest gross margin improvement. The tax rate for fiscal year 2008 is expected to be at or slightly below 29% excluding the 50-basis point benefit of the one-time tax gain.
For the October-December quarter, organic sales are expected to grow four to six percent. The combination of pricing and product mix is expected to be about neutral to sales growth.
Foreign exchange is expected to have a positive impact of three to four percent. The net impact of acquisitions and divestitures is estimated to have a negative one to two percent impact on sales growth. Total sales are expected to increase six to eight percent.
Procter & Gamble Hygiene & Health Care Ltd
marketing@alchempro.com
