Proctor and Gamble 2008 Annual Report Download - page 48

46 TheProcter&GambleCompany Management’sDiscussionandAnalysis
FusionexpansionandPrestobarba3launch.Indevelopedregions,
bladesandrazorsvolumewasdownlow-singledigitsasdouble-digit
growthonFusionwasmorethanoffsetbylowershipmentsoflegacy
shavingsystems.Fusiondeliveredmorethan$1billioninnetsales
for2008,makingittheCompany’s24thbillion-dollarbrand.Braun
volumewasdownmid-singledigitsprimarilyduetosupplyconstraints
atacontractmanufacturer,theannouncedexitsofcertainappliance
businessesandthedivestitureofthethermometerandbloodpressure
devicesbusiness.
NetearningsinGroomingwereup21%in2008to$1.7billionbehind
netsalesgrowthanda170-basispointearningsmarginexpansion.
EarningsmarginimprovedbehindlowerSG&Aasapercentageofnet
sales,partiallyoffsetbyareductioningrossmargin.Grossmargin
declinedduetohighercostsincurredatacontractmanufactureron
theBraunhomeappliancebusiness,whichmorethanoffsetbenets
fromhigherpricingandvolumescaleleverage.SG&Aasapercentage
ofnetsaleswasdownprimarilyduetoloweroverheadspending
drivenlargelybysynergiesfromtheintegrationofGilletteintoP&G’s
infrastructure.
In2007,netsalesinGroomingincreased45%to$7.4billionon36%
unitvolumegrowth,includingtheimpactoftheextrathreemonths
ofGilletteresultsinscal2007.Organicsalesincreased6%duringthe
year,withorganicvolumeup2%.Bladesandrazorsorganicvolume
wasupmid-singledigitsprimarilybehindthecontinuedexpansionof
theFusionrazorsystemandgrowthofMach3incountrieswhere
Fusionhasnotyetlaunched.FusionwaslaunchedinNorthAmerica
inscal2006andexpandedintoothermarketsincludingWestern
Europeinscal2007.InBraun,organicvolumewasdownlow-single
digitsastheimpactofthelaunchesof360CompleteandContour
razorsinNorthAmericaandPulsonicrazorsinGermanyandJapan
weremorethanoffsetbylowervolumeonhouseholdappliancesin
Europe.Favorableproductmix,primarilybehindthelaunchofthe
premiumFusionrazors,contributed3%tonetsales.Priceincreases
takenacrossmostshavingsystemsaddedanadditional2%tonet
salesandfavorableforeignexchangeaddedanadditional4%.
Netearningsincreased63%in2007to$1.4billion.Theextrathree
monthsofGilletteresultsinscal2007contributed46%ofthetotal
earningsgrowth.Theremaininggrowthwasduetoorganicsales
growthandintegration-drivensynergysavings,partiallyoffsetby
highermarketinginvestmentbehindFusionandincrementalacquisition-
relatedcharges.Weincurredapproximately$40millionofincremental
acquisition-relatedchargesinscal2007.Theincrementalacquisition-
relatedchargesareprimarilycomprisedofamortizationchargesfrom
revaluingintangibleassetsintheopeningbalancesheet,partially
offsetbybaseperiodproductcostsrelatedtorevaluingGillette’s
openinginventorybalance.Amortizationchargeswerehigherinscal
2007duetotheextrathreemonthsofGilletteresultsintheperiod.


   Changevs.  Changevs.
(inmillionsofdollars)  PriorYear 2007 PriorYear*
Volume  +4% n/a +8%
Netsales  +9% $13,381 +13%
Netearnings   +12% $ 2,233 +22%
*TheGillettebusinesswasacquiredonOctober1,2005.Therefore,thescal2007growth
ratesareversusabaseperiodthatincludedonly9monthsofGilletteHealthCareresults
(e.g.,Oral-B).
HealthCarenetsalesincreased9%in2008to$14.6billionbehinda
4%increaseinunitvolume.Foreignexchangehadapositive5%
impactonnetsalesandpriceincreasesadded1%tonetsales.
Disproportionategrowthindevelopingregions,whichhaveselling
pricesbelowthesegmentaverage,resultedinanegative1%mix
impact.Femininecarevolumeincreasedmid-singledigitsandorganic
volumewasuphigh-singledigitsbehinddouble-digitgrowthon
Naturellaandhigh-singledigitgrowthonAlways,whichmorethan
offsetalow-singledigitdeclineonTampax.Ourglobalfemininecare
marketshareincreasedslightlyin2008toabout38%.Oralcare
volumewasupmid-singledigitsbehindinitiative-drivengrowthon
Oral-BtoothbrushesandCrest.U.S.marketshareonCrestdentifrice
wasinlinewiththepreviousyear.Volumeinpharmaceuticalsand
personalhealthwasuplow-singledigitsastheimpactofaddingthe
SwissPrecisionDiagnosticsbusinesswaslargelyoffsetbylower
shipmentsofActonel,PrilosecOTCandPuR.ThePuRdeclinewas
fromadjustmentstoaWhirlpool®waterlterslicensingagreement.
PrilosecOTCvolumebegantodeclineinthethirdscalquarterof
2008duetotherecentlossofmarketplaceexclusivityandtheentry
ofcompetingproductsintothemarket.Thisisexpectedtocontinue
andtohaveanadverseeffectontheresultsoftheHealthCareseg-
mentinfutureperiods.
NetearningsinHealthCarewereup12%in2008to$2.5billiondue
tohighernetsalesanda50-basispointimprovementinnetearnings
margin.NetearningsmarginincreasedasreducedSG&Aasapercent-
ageofnetsalesmorethanoffsetlowergrossmargin.Grossmargin
wasdownduetohighercommoditycostsandalessprotablemix
drivenprimarilybydisproportionategrowthindevelopingregionsand
lowershipmentsofPrilosecOTC,whichmorethanoffsetthebenetof
increasedvolumescaleleverageandmanufacturingcostsavings.SG&A
improvedprimarilybehindloweroverheadspendingasapercentage
ofnetsalesduetoafocusonproductivityimprovementandGillette
synergybenets.
HealthCarenetsalesincreased13%in2007to$13.4billionbehind
an8%increaseinunitvolume.Salesandvolumewereupasaresult
ofthreeadditionalmonthsofGilletteoralcareresultsinscal2007
andgrowthonthebaseP&Gbusiness.HealthCareorganicsales
increased7%behind5%organicvolumegrowth.Oralcareorganic
volumegrewmid-singledigitsbehinddouble-digitgrowthindevelop-
ing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