Proctor and Gamble 2000 Annual Report Download - page 19

FINANCIAL REVIEW (CONTINUED)
The Procter & Gamble Company and Subsidiaries
17
PAPER
The paper segment had net sales of $12.04 billion, down
1% from the prior year on flat unit volume. Excluding the
impact of exchange rates, primarily the euro, sales were
up 1%. Excluding the impact of the prior year divestiture
of the Attends adult incontinence brand, unit volume
increased 2%.
Net earnings were $1.07 billion, down 16%, reflecting
tissues and towel expansion in Western Europe, invest-
ments in new product initiatives on Charmin, a tough
competitive environment in baby care and feminine care
businesses, increased capacity and unfavorable raw and
packing material cost trends.
In the current year, tissues and towel volume and sales
grew 9% and 7%, respectively, behind geographic expan-
sion, as well as a major product upgrade on Charmin.
Volume growth was broad-based in all major markets,
led by the North America expansion of Charmin and
Bounty. Product introductions in the United Kingdom
contributed to volume progress in Western Europe. In
1999, volume and sales increased 7%, primarily due to
gains in North America and Northeast Asia.
Tissues and towel earnings declined despite volume
growth, as rising pulp and energy prices, combined with
investments in geographic expansions and product
initiatives, more than offset volume gains. In addition,
two new paper machines in North America and another
in the United Kingdom provided needed capacity, but
resulted in higher start-up costs. Commodity-driven pric-
ing actions were taken during the last quarter of the
year, but were not sufficient to offset the full year impact
of cost increases.
Baby care volume was flat, as significant competitive
challenges in Western Europe offset increases in other
markets. Excluding a 3% negative exchange impact,
sales increased 1%. Earnings were affected by increased
marketing and administrative expense. The recent intro-
ductions of Pampers One-Ups! wipes and Luvs
Splashwear, the expansion of Pampers into China and
planned product improvements are expected to better
position the baby care business by restoring consumer
value in the face of the current price premium versus
competition. For fiscal 1999, pricing actions drove sales
up 5% on flat unit volume.
Feminine care volume declined 9%, due primarily to the
impact of the prior year divestiture of the Attends adult
incontinence brand. Excluding the divestiture, volume
declined by 3% primarily driven by competitive activity in
Northeast Asia, China and Latin America. Sales decreased
7%. Excluding exchange impacts, sales declined 4%.
Earnings were down due to lower volumes, combined
with product initiative related cost increases primarily in
North America and Western Europe. While unit volume
declined 3% in 1999, sales increased marginally.
In 1999, paper net sales increased 4% to $12.19 billion
on 1% unit volume growth, led by tissues and towel and
baby care. Net earnings were $1.28 billion, a 29%
increase over 1998, primarily driven by baby care results.