Proctor and Gamble 2008 Annual Report Download - page 49

Management’sDiscussionandAnalysis TheProcter&GambleCompany 47
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.Feminine
carevolumewasuphigh-singledigits,ledbydouble-digitgrowthin
developingregions.SuccessfulinitiativeactivityinNorthAmericaon
theAlwaysCleanandFreshinitiativesandproductupgradeson
TampaxPearlmorethanoffsettheimpactofstrongcompetitive
activityinWesternEuropeandNortheastAsia,resultingina1-point
increaseinourglobalfemininecaremarketshare.Pricing,primarilyin
pharmaceuticalsandpersonalhealth,contributed2%tosegmentnet
salesgrowth.Amorepremiumproductmixaddedanadditional1%
tonet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netsales.Netearningsgrew22%to$2.2billionin2007
behindorganicsalesgrowth,theadditionalthreemonthsofGillette
oralcareresultsandearningsmarginexpansion.Earningsmargin
increased120basispointsbehindincreasedgrossmarginonourbase
businessandlowerSG&Aasapercentageofnetsales.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.

   Changevs.  Changevs.
(inmillionsofdollars)  PriorYear 2007 PriorYear
Volume  +2% n/a +0%
Netsales  +7% $4,537 +4%
Netearnings   0% $ 477 +24%
Snacks,CoffeeandPetCarenetsalesincreased7%to$4.9billionin
2008.Netsalesgrewbehinda2%volumeincrease,apositive3%
priceimpactresultingfrompriceincreasesincoffeeandpetcareand
a3%favorableforeignexchangeimpact.Productmixhadanegative
1%impactonnetsalesfromadeclineincoffeevolume,whichhas
highersellingpricesthanthesegmentaverage.Snacksvolumewas
uphigh-singledigitsbehindthelaunchofRiceInfusioninWestern
EuropeandExtremeFlavorsandPringlesStixinNorthAmerica.
Coffeevolumedeclinedlow-singledigitsasgrowthfromthelaunch
oftheDunkin’Donuts®linewasmorethanoffsetbylowervolume
onthebalanceofthebusinessduetohigherpricegapsversus
brandedcompetitionandreductionsintradeinventorylevelsahead
ofanupcomingproductrestage.CoffeemarketshareintheU.S.was
upabout1pointversustheprioryear,primarilyduetofavorablemix
impactsfromthepremium-pricedDunkin’Donuts®line.Inpetcare,
volumewasdownlow-singledigitsduetonegativeimpactsfromthe
voluntarywetpetfoodrecallintheU.S.inMarch2007thatcontrib-
utedtoabouta1%declineinourU.S.marketshare.
NetearningsinSnacks,CoffeeandPetCarewere$477millionin
2008,inlinewiththeprioryear.Highersaleswereoffsetbylowernet
earningsmargin.Netearningsmarginwasdown70basispointsas
lowergrossmarginmorethanoffsetimprovedSG&Aexpensesasa
percentageofnetsales.Grossmarginwasdownashighercommodity
costsacrossthesegmentmorethanoffsetpriceincreases,baseperiod
petfoodrecallimpactsandmanufacturingcostsavings.SG&Adecreased
asapercentageofnetsalesduetoreductionsinbothoverheadand
marketingspendingasapercentageofnetsales.HurricaneKatrina
insurancepaymentswerereceivedinboththecurrentandprevious
scalyearsand,therefore,hadminimalimpactonthesegment’s
year-on-yearnetearningsgrowthrate.
Wepreviouslyannouncedplanstoseparateourcoffeebusinessinto
aseparateoperatingcompany.InJune2008,weannouncedan
agreementwithTheJ.M.SmuckerCompanytomergetheseparated
coffeecompanyintoTheJ.M.SmuckerCompanyinanall-stock
reverseMorrisTrusttransaction.Weexpectthetransactiontoclose
inthesecondquarterofscal2009.Thecoffeebusinesscomprised
$1.8billionofnetsalesin2008.
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2007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netsales.Foreignexchangehada
positive2%impactonnetsales.Netearningsin2007increased24%
to$477million.Earningsincreasedbehindsalesgrowthandabase
periodcomparisonthatincludedcostsrelatedtoHurricaneKatrina,
whichmorethanoffsetadeclinein2007grossmarginfromthe
impactsofhighercommoditycostsandexpensesassociatedwiththe
petfoodrecall.


   Changevs.  Changevs.
(inmillionsofdollars)  PriorYear 2007 PriorYear*
Volume  +6% n/a +10%
Netsales  +11% $21,469 +13%
Netearnings   +9% $ 3,127 +20%
*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FabricCareandHome
Careresults(e.g.,batteries).
FabricCareandHomeCarenetsalesin2008increased11%to
$23.8billion.Volumewasup6%,priceincreasesadded1%and
favorableforeignexchangeadded5%tonetsalesgrowth.Thiswas
partiallyoffsetbyanegative1%miximpactprimarilyfromdispro-
portionategrowthindevelopingregionsandashifttowardlargesizes
infabriccare,bothofwhichhavesellingpricesbelowthesegment