Proctor and Gamble 2009 Annual Report Download - page 41

Management’s Discussion and Analysis The Procter & Gamble Company 39
GROOMING
($ millions) 2009
Change vs.
Prior Year 2008
Change vs.
Prior Year
Volume n/a -6% n/a +5%
Net sales $7,543 -9% $8,254 +11%
Net earnings $1,492 -11% $1,679 +21%
Grooming net sales declined 9% in 2009 to $7.5billion on a 6%
decline in unit volume. Unfavorable foreign exchange reduced net
sales by 6%. Product mix had a negative 2% impact on net sales as
favorable product mix from growth of the premium-priced Gillette
Fusion brand was more than offset by a disproportionate decline of
Braun, both of which have higher than segment average selling
prices. Price increases, taken across most product lines and in part to
offset foreign exchange impacts in developing regions, added 5% to
net sales. Organic sales were down 2% versus the prior year on a 5%
decline in organic volume, mainly due to the sharp decline of the
Braun business. Volume in developed regions declined high single
digits and volume in developing regions declined mid-single digits.
Blades and Razors volume declined low single digits primarily driven
by market contractions in developed regions and trade inventory
reductions. Growth of Gillette Fusion and Venus was morethan offset
by declines in legacy shaving systems. Global value share of blades
and razors was up less than half a point versus the prior year. Volume
in Braun was down double digits due to market contractions, trade
inventory reductions and the exits of the U.S. home appliance and
Tassimo coffee appliance businesses. Global value share of the female
dry shaving market was up more than a point, while global value share
of the male dry shaving market was down less than half a point.
Net earnings were down 11% in 2009 to $1.5billion primarily on the
decline in net sales and a 60-basis point reduction in net earnings
margin. Net earnings margin was down due to a higher effective tax
rate and reduced gross margin, partially offset by lower SG&A as a
percentage of net sales. Gross margin declined due to unfavorable
product mix resulting from disproportionate growth of disposable
razors, higher commodity costs and volume scale deleverage which
were partially offset by price increases and manufacturing cost savings.
SG&A as a percentage of net sales was down due to lower overhead
and marketing spending. The economic downturn in fiscal 2009 has
resulted in a disproportionate decline in the Braun business particularly
in developing geographies, given the more discretionary nature of home
and personal grooming appliance purchases. We believe the Braun
business will return to sales and earnings growth rates consistent with
our long-term business plans. Failure to achieve these business plans
or a further deterioration of the macroeconomic conditions could
result in an impairment of the Braun business goodwill and intangibles
recorded in 2005 as part of the Gillette acquisition.
Grooming net sales increased 11% to $8.3billion in 2008. Net sales
were up behind 5% volume growth, a 7% favorable foreign exchange
impact and a 2% positive pricing impact driven by price increases
on premium shaving systems. Product mix had a negative 3% impact
on net sales as positive product mix from growth on the premium-
priced Gillette Fusion brand was more than offset by the impact of
disproportionate growth in developing regions, where selling prices
are below the segment average. Blades and Razors volume increased
high single digits behind double-digit growth in developing regions
driven primarily by Gillette Fusion expansion and the 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. Gillette Fusion
delivered more than $1billion in net sales for 2008. 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
$1.7billion behind net sales growth and a 170-basis point earnings
margin expansion. Earnings margin improved behind lower SG&A as
a percentage of net sales, partially offset by a reduction in gross
margin. Gross margin declined due to higher costs incurred at a
contract manufacturer on the Braun home appliance business, which
more than offset benefits from higher pricing and volume scale
leverage. SG&A as a percentage of net sales was down primarily due
to lower overhead spending driven largely by synergies from the
integration of Gillette into P&G’s infrastructure.
Health and Well-Being
HEALTH CARE
($ millions) 2009
Change vs.
Prior Year 2008
Change vs.
Prior Year
Volume n/a -4% n/a +4%
Net sales $13,623 -7% $14,578 +9%
Net earnings $2,435 -3% $2,506 +12%
Health Care net sales were down 7% to $13.6billion in 2009 on a
4% decline in unit volume. The divestitures of Thermacare and other
minor brands resulted in 1% of the unit volume decline. Unfavorable
foreign exchange reduced net sales by 5%. Negative product mix from
disproportionately higher volume declines of Personal Health Care and
Pharmaceuticals, which have higher than segment average selling
prices, reduced net sales by 2%. These negative impacts were partially
offset by positive pricing impacts of 4%. Organic sales were down
1% versus fiscal 2008. Volume declined mid-single digits in developed
regions and low single digits in developing regions. Personal Health
Care volume was down double digits due to the loss of marketplace
exclusivity of Prilosec in North America, the impact of a mild cold and
flu season on Vicks and the divestiture of Thermacare. All-outlet
value share of the U.S. personal health care market has declined over
2 points, including a double-digit share decline of Prilosec OTC.
Pharmaceuticals volume decreased high single digits mainly due to
minor brand divestitures and the impact of generic competition to our
Actonel brand in the osteoporosis category. The impact from the loss
of Prilosec exclusivity and from generic competition to the Actonel
brand are expected to continue. Oral Care volume declined low single
digits behind trade inventory reductions and market contractions in
North America and CEEMEA. Our global market share of oral care
was in line with the prior year. Feminine Care volume was down low
single digits mainly due to trade inventory reductions and market
contractions in North America and CEEMEA. Our global feminine care
market share was down half a point versus the prior year.