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» Procter & Gamble Co. - Shareholder/Analyst Call
As required by Regulation G, P&G needs to make you aware that during the call the company will make a number of references to non-GAAP and other financial measures. Management believes these measures provide investors valuable information on the underlying growth trends of the business.
Organic refers to reported results excluding the impacts of acquisitions and divestitures and foreign exchange where applicable. Adjusted free cash flow represents operating cash flow less capital expenditures and adjusted for after-tax impact of major divestitures. Adjusted free cash flow productivity is the ratio of adjusted free cash flow to net earnings including divestiture gains. Any measure described as Core refers to the equivalent GAAP measure adjusted for certain items you have posted on its website www.PG.com, a full reconciliation of non-GAAP and other financial measures.
Now, I will turn the call over to P&Gs Chief Financial Officer, Jon Moeller.
Thanks. Good morning, everyone. Joining me this morning are Bob McDonald and Teri List. Today we are going to share fourth quarter results, we will also discuss our commitment to deliver leadership levels and total shareholders return. Behind the time tested business model and stronger more focused plans.
I’ll begin today’s call with a summary of our fourth quarter results and guidance for fiscal 2013 and the September quarter. We are going to skip the detailed business-by-business discussion. All of this information is provided in our press release and will be available in slides which we posted on our website, www.PG.com.
During this we will get time for Bob to provide his thoughts on our strategy, our commitment to winning and to leadership levels of shareholder return. We will of course, take questions after our prepared remarks and we will be available after the call to provide additional perspective as needed.
With that let me move to fourth quarter results. We grew top line organic sales 3%. Progress was broad based with organic sales up in four or five reporting segments. P&G averaged 4% organic sales growth over the past three years achieving 3 to 5% organic sales growth for the past 11 consecutive quarters. Over this period we have added organic sales of $8.5 billion an amount that equates to the sales of a Fortune 300 company. We effectively created an energizer and (inaudible) in three years.
Growth continues to be very strong in developing markets. Developing markets now generate nearly 40% of sales and 45% of our unit volume. It's a $32 billion the largest developing market business of any consumer products company.
We see significant remaining growth opportunities as our business in developing markets is still lower as a percentage of sales than some of our competitors. We continue to focus on growing our footprint in the largest most important developed markets to improve our exposure to best-in-class levels.
We grew developing market organic sales 10% in the quarter, organic sales in China were up 9%, Brazil was up 17%, India sales grew 21% and Russia was up 18%.
We have a strong track record of successfully developing -- a successful developing market growth. Even in our come from behind markets. In 1991, our sales in Asia including India were about $1.5 billion. Unilever sales in Asia by our estimates were $4 billion. So we were about 38% of Unilever’s size in 1991. In 2001, ten years later, we generated $4 billion of sales in Asia and were 57% of estimated Unilever’s size. In 2011 we generated $12.8 billion of sales in Asia, 96% of our estimate of Unilever’s Asian sales. And in the year we just completed we generated $14.7 billion of sales in Asia and estimate we have now effectively maxed Unilever.
In the early 90s our sales in Greater China were about equal to Unilever’s at around $0.5 billion. Today Greater China is our second largest market with sales of $6 billion. This compares to Unilever sales of $2.5 billion. I used Unilever as a comparison point simply because they are best in class when it comes to developing market footprint. We have built our developing market shares in eight of the last ten quarters and have held share or grown it in all ten.
Developed market sales were down slightly in the quarter we just completed and were below levels reported by or best competitors. Developed market business is a disproportionate focus of strengthened plans and our top 40 category country combinations which we discussed at the Deutsche Bank Conference in Paris. These 40 businesses represent about 50% of company's sales and approximately 70% of operating profit. Trends in these markets should begin to improve over the six to nine months as plans are fully implemented.
Total company fourth quarter organic volume was in line with prior year levels. Pricing contributed four points to organic sales growth, positively benefitting all five reporting segments. This marks the fourth quarter consecutive quarter where pricing has added four or more points to sales growth, and the fourth consecutive quarter where pricing has been a positive contributor to growth in each segment. We have several questions about the retrospective wisdom of our price increases. This is an important question which I want to spend a little bit of time on.
Over the last few years commodity costs increased by $3.6 billion, which is nearly 25% of our core operating earnings. Letting this all come to the bottom line would have been very punishing for our shareholders and would have compromised structural economics in many markets, significantly reducing the value of future growth. We made what we believe was the hard right choice, taking pricing across our product categories, while acknowledging the market share volatility we knew would result.
World competitors, including private label have also taken pricing, we stand in very good shape. Price elasticity at the category level is generally low in consumer staples categories. In some instances where competitors have not taken pricing, we need to adjust. This is relatively easy to do, but takes some time to fully execute. During our last earnings call we mentioned six category country combinations but we have made a decision to roll back prices or match increases in competitive promotion levels.
These choices are now beginning to positively impact business momentum. All of these moves were made in the U.S. In three of these categories we have already begun to see the benefit. U.S. laundry market share was down 1.6 points over the past 12 months. Over the past six months, it was down 0.8 points. Market share in past three months is down 0.2 points and in the past month we have built market share of 0.6 points. Within this Tide Value share is up 2.6 points behind the success of premium priced Tide PODS Innovation. We expect this trend to continue as we began merchandising Tide PODS, and our large sized, higher value powder laundry packages reached the market.
U.S. male blades and razor share trends are also positive. Past 12 months share was down minus 1.4 points. Past six and three months shares were down 0.7 points. In the past month we grew share by 0.4 points. The strength of our plans on this business will increase going forward. While not yet fully positive share trends in U.S. auto dish have also improved significantly. On a 12-month basis, share is down 5.5 points while past one month share is down only 1 point. The U.S. Oral Care changes we talked about in the last call just went into full effect in July.
We have subsequently announced changes in U.S. family care. Where we will take a list price reduction on our Bounty Basic and Charmin Basic lines, and in several Beauty and Health businesses where we will be making targeted adjustments. In total, the investment of price roll backs and increased promotion now represent about 400 million of the 3.5 billion of pricing we put into the market. Many more prices are holding that are not.
As I’ve said we have 4 points of pricing benefit to the top line and the quarter we just completed. Unilever had 3.5 points, Colgate had 3.5 points, Kimberly had 2 points, Clorox had 5 points. So, we don’t appear to be differentially exposed to a significant degree.
Mix reduced sales by 1 percentage point in the quarter due mainly to over-proportionate growth in developing markets. All-in net sales for the quarter were down 1% versus the prior reflecting a negative 4 point FX impact.
Moving to the bottom-line core earnings per share were $0.82 in line with prior year. The core tax rate was 22.4%, higher than last year’s rate of 21.1% but lower than 25% rate included in our initial guidance for the quarter. The lower rate was driven by several favorable audit outcomes and behind stronger developing market results which drove favorable tax mix. The lower rate contributed $0.03 of earnings per share versus our tax guidance.
Net earnings were $1.24 per share up 48% versus year ago. This includes the positive impact from the Pringles divestiture which closed in the quarter of $0.48 per share. It also includes $0.08 of non-core restructuring cost.
Core gross margin increased 10 basis point, pricing improved gross margin by roughly 220 basis points and savings [projects] helped gross margin by approximately 240 basis points. These benefits were partially offset by a 200 basis point negative impact from higher commodity costs and 100 basis point negative impact from a combination of product and geographic mix.
Core SG&A cost were down 80 basis points due mainly to top line leverage and lower overhead costs driven by productivity improvements. An important part of our strengthened plans is our commitment to improve productivity. As one demonstration of this commitment, we significantly over-delivered our overhead productivity targets for the fiscal year.
In February, we announced our intent to reduce non-manufacturing enrolment by 3% by June 30. This equated to 1,600 roles. Actual non-manufacturing enrollment is down by 2,000 roles versus last year or 4% ahead of target. There are another 990 individuals whose effective transition date was July 1, 2012. These roles are not included in the June 30 reduction figure of 4%. Through July 1 then, the reduction would be 5% about 60% of objective. We now think we will achieve the majority of our initial 10% reduction target by the end of the calendar year, which represents meaningful acceleration.
As part of our productivity work, we have identified additional opportunities to cut cost. We expect overtime to be down by more than 10%, but need the balance progressed on role reductions with the need to reverse trends in developed markets and fuel continued growth in developing markets.
Core operating profit continue to improve, growing 4% for the quarter, while not yet where we want to be, we made sequential improvement throughout this fiscal year with core operating profit progressing from down 4% in the first two quarters to up 2% in the third quarter to up 4% in the fourth quarter.
Core operating profit margin grew 90 basis points including about 280 basis points of productivity improvements and cost savings. On an all-in basis, including restructuring costs, gross margin was down 40 basis points with all-in operating margin down 30 basis points. All of the decline in reported operating was due to a 120 basis points of non-core restructuring investments.
We generated 2.7 billion in free cash flow with quarterly adjusted free cash flow productivity of 142%. Free cash flow for the fiscal year 9.3 billion. Adjusted free cash flow productivity was 90% consistent with our target.
During the fiscal year we returned $10 billion of cash to shareholders through 6 billion of dividends and 4 billion of share repurchase. We paid a dividend for 122nd consecutive year one of only nine companies to have done this. We increased the dividend 7%; this was the 56 consecutive year we have increased the dividend, one of only six companies to have done this.
Over the last 10 years P&G has paid out $42 billion in dividends, excluding 20 billion of share repurchase associated with the Gillette acquisition we repurchased 46 billion in stock. In total through dividend and share repurchase we have returned 88 billion of cash to our shareholders which is 90% of reported net earnings.
Returning capital to shareholder through both dividend and share repurchase remains a central pillar of our efforts to deliver superior. But before I get into the details of 2012-13, I would like to step back and provide some framing.
Developing market growth and cash flow productivity were both strong in 2012. Developed market growth and earnings progress were not. Our focus and strength in 40-20-10 plan is designed to restart growth in developed markets while maintaining developing market growth. The top four category country combinations are disproportionally developed market businesses. Businesses like North American, Western Europe Laundry Detergent, Baby Care, Hair Care, North American and Western European Shave Care and Feminine Care businesses along with North American Oral Care and Skin Care.
We have worked with the leadership team to ensure we have sufficient plans to achieve our objectives in these markets. We are making certain that we have offerings that provide superior performance and value. That our pricing is right. That innovation is strong; that marketing effectively communicates the superiority of our offerings and that there is sufficient marketing support. This will require investment, in pricing as I have described earlier, in innovation and in marketing. Advertising spend in developed markets will increase.
Restarting growth in developed markets will have a positive overall impact on profit as these are some of our most profitable businesses. At the same time we will begin to earn a return on the developing market investments of the past couple of years. As we bring more of the portfolio to bear, as we switch local manufacturing plants on, as we continue trading aspirational consumers up, as accretion from previous entries funds new ones, the developing market margins will improve.
In addition to all of this is a five-year $10 billion cost savings program which we are implementing and which is on track. As I mentioned earlier, we are ahead of target on the overhead portion of this plan and we will have completed the majority of it by the end of the calendar year, accelerating its benefit. Also as I mentioned, we see opportunities before the reductions and we will be balancing those with the need to make top line progress. Our ending points though will be greater than a 10% reduction on an apples to apples basis.
We already have plans to deliver $1 billion of the $1.2 billion we need in cost of goods sold savings for 2012-13, and have established stretched target of $1.4 billion. The plan includes a 5% net productivity increase across our manufacturing operations even as we bring on new manufacturing capacity in developing markets. We are expecting significant savings from our ongoing global supply network design while in the area of transportation new planning tools and capabilities will improve our vehicle fill rate by 1.5 points. We are planning on material savings driven by reformulation, compaction and innovation.
We have chosen for next fiscal year to prioritize resumption of developed market growth over efficiencies in advertising. We will still be striving for efficiencies but we will be investing these back in the business. On a going basis, we would expect these efficiencies to come to the bottom line. In addition to focus and strengthen plans where it matters most, and in addition to our cost savings plan, we are increasing the effort being applied to discontinuous innovation, which Bob will talk more about in minute.
In a normalized world, in other words absence major exogenous events, we should be poised to significantly accelerate operating leverage and earnings per share growth. And we should be in a position to better withstand exogenous events if they occur, while delivering target levels of earnings growth. One way to think of the growth algorithm is as follows. We grew our top line at the current rate of market growth which is 4%; earnings per share would grow at 4% assuming no operating leverage or share repurchase.
$2 billion in savings per year, regardless of whether they come from cost cuts or operating leverage, create an 11 points earnings per share benefit. If we only bring half of the bottom line it would equate to about six point earnings per share benefit. This 6 to 11 point range of savings benefit would take the 4% earnings per share growth to a range of 10% to 15%. Share repurchase should add another two points, taking earnings per share growth potential to a range of 12% to 17%. Developing market profit accretion in any top line growth above market rates, in other words building market share, would be additive to this.
If we deliver two-thirds of the 12 to 17 point range due to macro impacts or mix, earnings per share growth would be 8% to 11%. That’s why we are maintaining our long-term earnings per share guidance of high single to low double digits. And I want to be clear that for us, long-term is 2014.
With that as background let me turn to 2013. It will take some time to get our plans fully implemented. We won't have a full year of overhead savings, for example, until 2014. Some of the developed market businesses will take some time to write and we will be investing to do this, not counting our marketing efficiencies in 2013. There are also significant macro headwinds; our guidance for 2013 reflects both of these realities.
Fiscal year organic sales guidance is unchanged from the preliminary outlook we provided in mid-June. Organic sales growth is expected to be in the range of 2 to 4%. This is comprised of volume growth of 1 to 3%, pricing contribution of about 2%, and negative mix of around 1%. We expect by the back half of the fiscal year, we will return to modest market share expansion. We expect foreign exchange will be a top line headwind of about 4 percentage points based on mid-July spot rates. This brings our all-in sales growth guidance to a range of down to inline versus the prior year.
On the bottom-line we expect core earnings per share in the range of $3.80 to $4. This is the same as the preliminary guidance we provide in June. The growth rate just down to minus 1 to plus 4% as the earnings per share over-delivery in the fourth quarter 2012 hurts our fiscal 2013 earnings growth rate by about 1 point. As I mentioned earlier that over-delivery was largely taxed which is not carry forward.
We expect to continue our 56 years track record of dividend increases. The exact amount of the increase is subject to board approval and will be determined by the Board during the April 2013 Board meeting.
Our plan now include share buyback of $4 billion in 2013. We continue to value our AA minus rating and our disciplined and managing against it. But given strong cash performance in the last quarter, even lower interest rates, the growing spread between financing cost and our dividend yield, the current stock price and most importantly our growing confidence in our business plan. We have decided to accelerate future share repurchase.
Within our fiscal 2013 guidance, we expect approximately $0.04 to $0.05 benefit from a combination of lower interest expense and higher non-operating income. These benefits will be offset by $0.04 to $0.05 headwind from a higher effective tax rate on core earnings.
This earnings per share forecast assumes mid-July’s spot prices for both commodities and foreign exchange, foreign exchange rates [came to] 3 point earnings per share headwind without which 2013 earnings per share growth would be 2 to 7%. Commodities are up modestly on a year-on-year basis.
There are couple of significant one-off items included in the guidance, the guidance includes $0.06 per share negative impact from pension and employee benefit plans as a result to provide assumptions for the discount rate used to value planned liabilities and projection return on planned assets. We are also building in about $0.06 per share impact from the combination of recently imposed import restrictions in Argentina and a carryover impact from mandated price reductions in Venezuela.
A transparency and enable more informed decision making, we also want to call out some of the potential risks that are not included in our guidance. As I said earlier, our forecast is based on mid-July foreign exchange spot rates. The currency risk includes significant dollar strengthening or a large post election to valuation of the Venezuelan (inaudible).
Our guidance assumes current market growth rates; a significant deceleration associated with the European financial crisis or with the fiscal [prep] in the United States would put additional downward pressure on these estimates.
Last, where all to assuming within this guidance, the key provisions of U.S. tax code that require regular extension including the R&D tax credit and subpart have looked through rules are in fact extended.
One additional item not included in our current guidance is the earnings per share impact from our purchase of the balance of our Baby Care and Feminine Care joint venture in Iberia which was announced last month. The transaction is subject to regulatory approval and when completed is expected to result in a 400 to $600 million before tax non-core holding gain. We expect to complete the transaction by the end of the calendar year. Gaining full ownership of the business, we will also have an impact on core operating profit results and will adjust guidance if necessary as the transaction is completed.
One last [revisal] on fiscal year guidance, I want to repeat what I’ve said on several previous occasions. We are committed to deliver plans that creates long-term value for shareholders. We won’t chase commodities or currency out of the window just to deliver guidance number. We will execute our plan and we will do it in the most fiscally responsible way we know how.
[Highlighting] fiscal year guidance on an all-in basis earnings per share forecast in the range of 3.61 to 3.85. This includes non-core restructuring investments of $0.15 to $0.19 per share. Including both core and non-core spending we expect to make restructuring investments of up to $1 billion in fiscal 2013. We expect free cash flow productivity will again be around 90% of net earnings, consistent with our long-term target. This includes a forecast for capital spending of around 5.5% of sales as we continue to expand production capacity in developing markets. The July September quarter will be our toughest, both from a competitive standpoint and from the standpoint of planned momentum, both on top line and as it relates to the savings.
We are estimating organic sales in the range of flat to up 2%; within this we expect pricing will contribute three points to sales growth. Foreign exchange is expected to reduce sales by 6%, which leads to all in sales in the range of down 6% to down 4% versus a year ago. On the bottom line we expect September core earnings per share in the range of $0.91 to $0.97 or down 10% to down 4% versus base period core earnings per share of $1.
On an all-in basis, we estimate earnings per share in the range of $0.83 to $0.91. This includes non-core restructuring charges in the range of $0.06 to $0.08 per share. Foreign exchange is currently estimated to have a five to six point impact on the bottom line in the first quarter which is driving most of the difficult comparison. July, September volume in sales growth are also the lowest of the four quarters. For the balance of the fiscal year, we currently expect quarterly organic sales in the -- growth in the range of 3% to 4%, with modest improvement each quarter, as we restore momentum in our top 40 category country combinations.
On the bottom line, we currently expect core earnings per share growth for the balance of the year in the range of 1% to 6%. The improvement versus the first quarter is driven by the elimination of the foreign exchange headwind; improve top line, increasing cost savings and the timing of non-operating income benefits. Now let me turn it over to Bob.
Thanks, Jon. The whole P&G organization is committed to generating superior levels of shareholder return. We intend to do this through our commitment to win with consumers for offering branded products and superior quality and value, and by focusing on our largest and most profitable businesses. And through our $10 billion cost savings program. We have continued to grow our business during the most difficult economic periods since the great depression.
We have done exceptionally well growing our top line and developing markets, but they have come up short on top line growth in developed markets and on bottom line growth overall. We have implemented three meaningful changes to address our shortfalls. The first is our 40-20-10 focus. Focusing resources on the 40 largest and most profitable businesses, many of which are in developed markets. On our 20 largest innovation and on the ten most important developing markets.
As a first priority we are ensuring that we have sufficient plans to achieve our objectives in the 40 largest category country combinations. We have to make certain that we have offerings that provide superior performance and value, that our pricing is right. That our innovation is strong, and that the marketing effectively communicates a superiority of our offerings and there is sufficient marketing support, and we have done this. The second change is a deliberate refocus on discontinuous innovation. Innovation that obsoletes current offerings and creates new categories and new brands. Items like Tide PODS, Swiffer Crest White Strips or [zequel].
This of course comes on top of our commitment to ongoing innovation on our base business. In 2012, we spent more than $2 billion on innovation. 45% more than our next largest competitor. Innovation is at the heart of our business model and at the heart of our company. We are focused on driving our top 20 base business innovations, like Tide PODS, Always Radiant, Bounty Trap & Lock, Downy UNSTOPABLES in 2013, and advanced a promising pipeline beyond. But some of our fasters periods of growth and some of our largest and most profitable present day businesses were driven by discontinuous innovation; Disposable Diapers, Liquid Laundry Detergents, Home Care items like Swiffer and Febreze.
We need to get back after this in a meaningful way. In late July, we met with our global leadership to review and increasingly promising pipeline of new category and brand opportunities. While it will take some time to get some of these innovations ready for market, I can assure you, we have meaningfully advanced our work in this area over the last year. We should begin seeing the lead items in this portfolio enter the market in fiscal 2014.
The third change is the $10 billion productivity program we announced in February and that we are progressing. As Jon said, we significantly over delivered one piece of this plan in fiscal 2012 reducing enrollment well ahead of targeted levels.
In addition to these three changes, we are improving execution in all parts of the company, better execution will help us to overcome macro challenges, manage competitive threats and get the maximum benefit from our innovation, marketing and productivity programs. We are also maintaining accountability in all levels. In aggregate, short-term bonus awards will be below target, three year performance awards are currently tracking to average 35% of target.
In the last two years the stock options are currently under water. We all acknowledge this reflects the level and quality of our results. We have the right metrics to (inaudible) results that are aligned with shareholder objectives. Our long-term bonus metrics are simple, organic sales growth relative to competition, organic earnings growth, EPS growth and free cash flow productivity; the four drivers of total shareholder return.
We have aligned the entire company next year on short-term metrics of volume and sales growth, market share, operating profit growth and productivity which is delivering against the $10 billion plan, cash flow and internal controls. These are the metrics that we will measure ourselves against and that you can measure our progress by. We will be updating you on them as the year progresses.
With these changes, we should be poised to seize opportunities for top and bottom-line growth which are meaningful. We have significant opportunity for revenue growth to increase market share on our established businesses by expanding our portfolio of superior branded products into the most promising markets and price theatres.
And by innovating to expand markets and create new ones. Our productivity opportunity is substantive and the program is in place. This will help us finance top line growth, ensure our consumer value propositions are superior, overcome macro headwinds, and deliver better bottom-line growth. We are ahead of our targets to reduce non-manufacturing enrollment and have already identified and staffed $1 billion of the $1.2 billion in cost of goods sold savings we need in fiscal year 2013.
We have taken decisive action, but this company wasn’t built overnight. It will take some time to restart growth in developed markets; it will take some time to get the savings program to full run rate levels. We are committed to doing the job right and are taking the appropriate steps to do this. It will take some investment to ensure our brands are priced appropriately, our marketing plans are robust, and to restart innovation where it's been lacking.
We are committed to make those investments fueled by improvements in productivity and cost. We will move forward with urgency but with balance, balancing developing and developed market growth, balancing top and bottom-line and balancing short and long-term results. I know we will deliver.
One source in my confidence is Procter & Gamble’s long track record of success. Over the long periods of time when Procter & Gamble successfully execute its business model, it is consistently delivered and it has outperformed. Measuring from the end of each quarter, rolling 10 year returns have exceeded both the S&P 500 and the Dow Jones Industrial Average in 82 out of 88 periods or 93% of the time.
Enrolling 20 years returns have exceeded both the S&P 500 and the Dow Jones Industrial Average in 46 out of 48 periods or 96% of the time. Within this longer term track record, there have been shorter periods like the last couple of years of underperformance. These are typically been followed by periods of strong outperformance.
This past track record does not in any way guarantee future success, it does reflect though the strength of the time tested business model. Our business model which Jon described is centered on consumer insights, superior products and compelling advertising. It is a time-tested model in both good times and bad. With this model P&G has built the largest and most profitable Household Care business in the world. We built the largest most profitable Beauty and Grooming business in the world.
We have also built one of the largest and most profitable consumer Healthcare businesses in the world. With this model we have created $25 billion brands, the latest being SK-II and Vicks. In our categories, we have three times more billion brands then Unilever, which is our next largest competitor. And more than Kimberly-Clark, Colgate, Reckitt, Energizer, Estée Lauder, Henkel and Church & Dwight combined. The model, when executed, works.
It's working now in developing markets. It's working globally in Pampers, our first $10 billion brand. It's working in Prestige Beauty, it's working on Vicks, it's working in home care. We now need to more fully fund it through improved productivity and more consistently execute it. It will take some time to get back on the trajectory we want, but I give you my commitment that we will get back on this trajectory. We know what has to be done at Procter & Gamble, and we are taking the right steps to get it done.
One of my greatest sources of confidence it will get done, is the quality and capability of Procter & Gamble people. They are Procter & Gamble's most important competitive advantage. Along with our business model, we have a successful time-tested people development model. It starts with the very best people. Last year we had about 1 million applicants for fewer than 5,000 jobs around the world. We give people responsibility enabling them to develop and we build them into the best leaders in our industry.
This combined with continued strong progress in developing markets, substantive annual cost savings and a strengthened core, should generate the kind of earnings progress that will put us among the best in our industry. This combined with our strong cash flow and track record of capital, return to shareholders; including the recent resumption in share repurchase makes P&G, in our view, an excellent long-term investment opportunity with substantial upside. We look forward to creating significant value for P&G shareholders and we will be reporting back to you on our progress along the way. That concludes our prepared remarks and now Jon, Teri and I would be happy to take your questions.
(Operator Instructions) Your first question comes from the line of Chris Ferrara from Bank of America. You may proceed.
Christopher Ferrara - Bank of America/Merrill Lynch
Can we talk about the mix a little bit? Obviously, you've talked, I think about long-term you think what the mix effect is on the top line. But bottom line or gross margin I should say, it’s hit you guys by about 200 basis points a quarter. This quarter it dropped to 100 basis points. I was wondering if you could try to frame a little bit. Put a little color around, first that drop from 200 to 100, right, in this period. I am trying to understand how high that wall is that you have to climb on cost savings to get to EBIT growth. And can you talk a little about; try to take a shot at what you think the long run kind of negative margin mix would be on product and geography? Thanks.
Part of the reason for the improvement in the last quarter is that we got full pricing for devaluation into the developing markets and so that that mix impact on that disproportionate growth in developing markets was less negative, than it would've been prior to that pricing being fully reflected. But also -- it also reflects, and this should be something that we continue to see going forward, improved progress and profitability in developing markets, behind the things we’ve been talking about for quite a while. Getting local sourcing in place, benefiting from the full scale of the portfolio as it gets put in place. And then we continue to see really significant trade-up in developing markets which is also improving margins. So, as those margins improve, the mix impact of disproportionate developing market growth also improves. I don’t have the specific number for you Chris in terms of what to expect going forward, but we will try to work on that and give you some dimensionalization of it.
Your next question comes from the line of Bill Schmitz from Deutsche Bank. You may proceed.
Bill Schmitz - Deutsche Bank
Just wanted to ask one question if I could, would you guys be able to give us the productivity savings in that 10 billion, either every quarter or every year. So I think that’s kind of important thing to track. And then my main question is, so I guess about 32% of the portfolio had market share flat or up in the quarter, which obviously was nice little uptick in June. Can you give us that metrics for the U.S. and then tell us what the U.S. growth was and sort of leaving the quarter, did you see any good signs of progress in the U.S. market share trend.
So, first Bill, on tracking the 10 billion of course, we will definitely do that. It will probably be more of annual or every six month report back as appose to every quarter, but we will definitely do that. And you can imagine we are doing that internally, it's part of our performance metrics. So, we should have that ability. Bob, do you want to comment on market share?
You are right Bill, we said that market share was about 33% one-third for the quarter, but ticked up to about 45% over the last month, and Jon covered some of the progress that we are seeing in market share gains in the U.S. in the categories where we have taken the corrective pricing action.
Moreover we strengthened our plans.
We strengthened our plans.
(Inaudible) with the Tide PODS addition for example.
Yes, in Tide PODS as you recall we added 2.5 points to the share PODS.
Your next question is from the line of Dara Mohsenian from Morgan Stanley. You may proceed.
Dara Mohsenian - Morgan Stanley
First, can you give us your commodity and tax rate assumptions for fiscal 2013 and do you have a total cost savings number for fiscal 2012, maybe I missed it? And then the real question, I was hoping for more detail on organic sales growth guidance in Q1, because you sounded pretty enthusiastic that some of the recent strategy changes and price adjustments you have made paid off in terms of improved market share in June, but if you have already made those adjustments and have an Olympic boost, I guess why is top line decelerating in Q1 despite the easier comp and then why do you think it will reaccelerate in the balance of the year beyond Q1?
So first, tax rate for next year think of kind of 25 to 26%. And as I mentioned in my remarks we currently see commodities up modestly so flat to up probably less than $100 million next year. Relative to top line sales growth versus the quarter we just completed we will have less pricing -benefit as we start to annualize some of the price increases that we have taken. So, that's the primary reason you are seeing that deceleration and then as we go through the year and the 40-20-10 plans are fully implemented, we will start to see stronger momentum in out period. It's not we go from zero to 2 to 3 to 4, so it's not a massive acceleration. But those are the two underlying dynamics that are driving those trends.
Your next question is from the line of John Faucher from JP Morgan. You may proceed.
John Faucher - JP Morgan
In looking at the relative success in emerging markets and the problems in developing markets, particularly what appears to be an overreliance on the U.S. from a profit growth standpoint? Can you talk a little bit about how you view the role of the GBU and if you look at most of your multinational competitors they do have more of a regional basis for the P&L. How do you guys look at ensuring that all the GBU is not run into the same side of the boat so to speak in terms of over relying on the U.S. from a profit growth standpoint?
First of all, I think it's important to understand how our GBUs are organized. We are really organized as regional business units that report up to a global head and so we try to maintain that presence at a regional level. And in terms of making sure that everybody run to the same side of the boat, we have very specific portfolio roles for geographies, both top and bottom-line, just as we do with business units and we manage it that way.
Also, John, it’s important to know that the whole focus on the 40-20-10 plan is about making sure we invest and resource our business where it matters most. And that is what a GBU President does and then of course there's oversight by the Vice Chairman of GBUs, Dimitri Panayotopoulos, and Jon and I as we meet with the GBU presidents. So in terms of a pendulum from one side to the other or exploiting one geography or another, it’s unlikely that would happen.
And your next question is from the line of Lauren Lieberman from Barclays Capital. You may proceed.
Lauren Lieberman - Barclays Capital
I just want to ask a little bit about mid-tier innovation. Because I know that as you started talking about refocusing on discontinuous and that I think we will start to see flow through in fiscal ’14, one piece that felt kind of missing to me versus your plan laid out a few years ago was more mid-year innovation but particularly in developed markets. I know there has been a lot in developing. So can you talk about how that may or may not be playing a role in your plans at the top 40 going forward? Thanks.
Thanks, Lauren. It still is strategic for us to have a full vertical portfolio of offerings in every category. So that is part of our strategic plan and it is part of our innovation program. So, for example in laundry in the United States you would go from Tide TOTALCARE or Tide PODS on the high end. Tide TOTALCARE being priced about 160 versus average Tide, down to Gain at maybe 85 index or Era at 65 index, in pricing versus average Tide. So the same would be true, for example, in Skin Care with Olay, you can buy a product for as much as $6, or you can buy a professional product for as much as $45. So, we want to have a full vertical portfolio and we'll innovate at each one of those price points for the consumers that those products serve.
And you will see entries, Lauren, in the mid-tier, in the year that's coming up in developed markets.
Your next question is from the line of Nik Modi from UBS. You may proceed.
Nik Modi - UBS
Just wanted to talk about category growth. A lot of focus on market share, given the fact that you guys are so big in your categories and typically the leading brand, just wanted to get your perspective on kind of how you’re thinking about category growth philosophically as you look to kind of recover the top line?
We think it's our responsibility, Nik, to grow the categories for exactly the reason you said. Our retail partners, if you look at the Advantage Survey or the Cannondale Study, they recognize us having a comparative advantage versus our competition for growing category sales. So something like Tide PODS, for example, which is the most concentrated form of laundry detergent you can buy. Because of that concentration, it grows the category. And since we've launched Tide PODS, we've not only grown the share of Tide and grown the share of our laundry category, but we've also significantly increased category growth. Another example would be the Febreze car strip, which is a new kind of air freshener in the auto category which has grown the category substantially. When we innovate, when we introduce new items, when we improve the items that are in the market, we work hard to make sure we grow the category.
And you'll remember, back to CAGNY, Nik, we showed a couple of slides about our philosophy on developing markets and how it's all about category growth as a much more important component of overall growth. And that continues to be what we're seeing as well as we bring innovation into developing markets, the majority of the growth is sourced through market growth.
Your next question is from the line of Wendy Nicholson from Citi Research. You may proceed.
Wendy Nicholson - Citigroup
My first question is just a little bit of a follow-up. If you're focusing on the 40 largest businesses and that only represents 50% of your sales, isn't it logical to assume that the other 50% of your sales is probably going to continue to underperform and so maybe us all focusing on that market share metric, the 45% of the business or 55% of the business. Maybe that's not a fair indication of how your business is doing because I would imagine 50% is going to continue to really kind of lag.
But then my other real question is, I remember when AG announced his strategy and I think his was top ten customers, top ten countries, and top ten categories. And I remember at the time, the customer, there was a big differential between how much money P&G made or how profitable the business was with some of the top customers as opposed to the smaller customers. And I'm wondering if that should be a focus now or is there not so much of a spread maybe between what you make in various types of retail channels? Thank you.
Thanks, Wendy. The top 40, top 20, top 10 process while encompassing or comprising 50% of our sales and 70% of our profit, there is no intention to just simply disregard the rest of the business. And when you include the top 40, then you include the top 10 developing markets, you've got a pretty good swath of our business. In comparison to the program you talked about with AG which is really big customers, big brands, big countries. It’s the same approach, which is to make sure we focus on where our business matters most, and that’s what we’re doing.
In terms of profitability of customers, there's really not a difference by customer. What you really see, if anything, is a difference by channel. But we treat the customers the same and support, consistent with Robinson-Patman Act, and support them consistent with our innovations. In fact, right now if you went into virtually any store in the United States, you would see a large number of displays of Olympic featured Procter & Gamble products. We’re in about 4 million stores with displays right now all over the world. And obviously we work with retailers to support those displays and to sell as much product as we can.
Your next question comes from the line of Joe Altobello from Oppenheimer. You may proceed.
Joseph Altobello - Oppenheimer
I guess first question, could you outline some of the changes that you have made internally on the innovation front in order to bring more impactful innovation, more discontinuous innovation to the market quicker? And then secondly you talked about the increase in advertising investment next year, just rough estimates, if you could quantify what we’re looking at in terms of the year-over-year increase in advertising next year. Thanks.
Relative to the discontinuous innovation, Joe, we've taken a number of steps. One is we've created a new business creation organization, call it NBC, reporting to Dimitri, the Vice Chairman of GBUs and also with the lot of oversight from my myself. And the whole idea there is to have people working on innovating in the seams in places that would fall between the organization boundaries. So, for example, a product like Swiffer would involve chemistry, would involve paper technology, would involve apparatus technology. No single GBU would develop that. It falls between the seams, so we need people working on that. Secondly, we put an experienced Group President in charge of that organization. It's Jorge Mesquita. Jorge has a track record of having developed a number of discontinuous innovations. When he worked with me I ran fabric and Home Care and he led our Home Care business and grew Febreze, grew Swiffer to significant pieces of business for us. Third is we have funded all of this activity and we focused the organization on it. Fourth is we have done training the organization on discontinuous innovation. We worked with Clayton Christensen from Harvard Business School who has helped us. And I think that's about it. There are more things, but they are more minor.
And in terms of the increase in advertising, Joe, obviously that's something that's somewhat fluid depending on how plans work or don’t work, but I’d think of it for now as up 30 to 50 basis points.
There’s one other thought and it wasn’t, we didn't knew it just for discontinuous innovation, but as an evidence of our scale of the Procter & Gamble company, we have taken a new approach in research and development called transformative platform technologies where we have identified nine technologies that span our business units. Think of these as technologies that are so breakthrough that no individual business unit could afford to invest in them on their own; but on the other hand, the corporation can invest in them. These are like 10 year, 20 year technologies that change the face of our business. One example of this that you would be familiar with is something called solid state technology. This of this as two metal roles that take a substrate between them and change the physical properties of that substrate as that substrate passes between them and provide either stretch properties so you would see that in Baby Care, you would see that in Feminine Care and always on Pampers. But you would also see that in Glad trash bags, the new stretchable Glad trash bags and the new stretchable Glad household bags. This [surfing] technology is a technology that no single business unit could create, but by creating it corporately and then putting it out to the business units, it's a great example of the scale benefit derived from our investment in research and development.
And just one clarification point for those who might be confused, we are in a joint venture with Clorox on the Glad business which is why Bob mentioned that.
And your next question comes from the line of Ali Dibadj from Bernstein. You may proceed.
Ali Dibadj - Sanford Bernstein
A couple of things. One is, just want to explore the prudence of saying fiscal year ‘13 is going to be back half weighted and the fiscal year ‘14 will return to the long-term growth rate which would be great, but just trying to understand the prudence of that. I guess, I just, I don't get it. I don't get kind of the bullishness around it given some of fits and starts you had to face for the past several years and especially you got to obviously give credit for the track record over 20 year and 10 year of the company, but that's a different time it was a different company. I think you need to do different things than you had done before.
So, first question is, do you agree that there are different things you have to do. So you have to be more value oriented that’s to be more in developing market. You have to sell beauty which you didn’t really be doing that whole timeframe and I don’t really know the solution is for Beauty. And you have the cost cut and if I were to focus on cost cutting for the second part, from all your numbers that you presented, you’re very reliant on cost cutting to deliver your numbers and look at the $10 billion restructuring which is great, the strong as you know, it was little late. But that was based on a 5% top line growth assumption, so that’s not happening and I’m trying to understand given you reliance there and given kind of first question, so you have to think really differently. How you’re going to make up that difference? Have you found big new buckets of cost saving because a couple hundred million dollars here and there won’t do it or you are expecting kind of a hockey stick of top line growth to get your 5%? So, are things different? Number one, and you have to do things differently. Number two is, how you’re going to plug the hole in 10 billion bucks given your top-line is not growing the way it was, expected to grow?
We believe that the Procter & Gamble Company has a time tested business model. It involves superior products, based on superior consumer insight. It involves the five strengths of the company, branding, go-to market, scale, innovation, consumer knowledge. We think those are enduring just like we think the purpose of the company is enduring. What we're doing now is we’re becoming more focused and more fit to win in this current environment. That’s what our 40-20-10 plans are about, that’s what our $10 billion cost savings and productivity improvement plan is about. That will be the fuel to growth and the fuel to profit, and that's what our discontinuous innovation focus is about. So we think this time-tested business model makes the Procter & Gamble Company an outstanding long-term investment.
And relative to a couple of the other points, Ali, on prudence of first quarter guidance, I don't generally consider whether something is prudent or not or consider whether it's accurate or not, and that's where we find ourselves and we try to explain why. In terms of the $10 billion program, I'd say a couple of things. First of all, we've tried to very transparently lay out exactly how that number was calculated, and you've rightly described how that's calculated. So, if you have a different view in terms of what happens with the top line or any component of it, we've given you all the pieces and you can model that any way that suits yourself.
I mentioned in my remarks that we have found, as we've gone through this, additional opportunities to reduce cost. I mentioned that I expected us to be, or that we would be, more than 10% below June 2011 levels on enrollment when we're all done. So, it's not like we're looking at the $10 billion figure and saying, that's it. This is about a culture and a mindset that, as Bob said, it puts us in a position to be more fit to win in a very difficult economic environment.
And your next question is from the line of Javier Escalante from Consumer Edge Research. You may proceed.
Javier Escalante - Consumer Edge Research
I just would like to understand again better the fiscal '13 plan, basically the financial side and how that guides with your long-term financial and strategic goal? So you left 2012 gaining share, or holding or gaining share on 45% of the portfolio. Your strategic target is to gain share on 65%, if I recall correctly. Are you planning to get there by the end of fiscal '13? If so, is the expanding to get there budgeted in your plan? And also if you can explain this change in the share repurchase issue? You halted it in May and now you're buying it again. You attributed to a debt rating issue but I don't think that it changed that much in a month and a half. So, if you can explain better why is it that now you're restarting share repurchases that you consider a structural change in the portfolio and now you're not considering it? If you can explain the share repurchase issue also as well it would be very helpful.
Sure. Let me start with the math for next year, if you will, and how it squares with both the end of the year we just completed as well as the subsequent year. We have, as I mentioned, funded increases in marketing support and we have, as I mentioned, funded investments in pricing. So the investments that are required to deliver that growth acceleration are baked in. And that's one of the reasons that the first quarter is what it is and it's one of the reasons that the overall guidance is what it is.
If you exclude foreign exchange from the guidance as we mentioned in the comments, we would be at about 2% to 7% earnings per share growth in 2013. That's not significantly off the bottom-end of the range that I described for 2014 of kind of 8%. And as we get a full year of cost savings in place, for instance from enrollment, as we gain the acceleration in the restarted plans in the developed markets etcetera, and as we don't have the significant one time hurts that we have in the current year due to pension revaluation and due to the Venezuela pricing thing, we should get there.
And your next question is from the line of Connie Maneaty from BMO Capital. You may proceed.
Connie Maneaty - BMO Capital Markets
Some time ago, we had calculated that Procter’s overhead cost per employee was about 40% higher than what we saw as an industry average. I’m wondering if you have benchmarked yourselves against the industry and what you think the right metric there would be and relatedly, it also seem to me as we’re evaluating this that it led to some internal gridlock. So, as personnel count is being reduced, what are the changes in processes or responsibilities that will make the organization more nimble?
Connie, our core SG&A is around 14.5% of sales which based on our benchmarking puts us in the bottom half of 15 company global competitive peer group. Now within that, there is some diversity. In general, the global beauty companies skew very high on this metric. Some is high as 24% of sales and the mainly domestic household care companies skewed at the low end of 9 to 10% of sales. The beauty companies because they have counters, they have beauty counselors, that’s why they are high. The household companies, some of them go through brokers and don't have sales forces, that's why they are low, but based on our mix of business, which is about 53% household care, 33% Beauty and Grooming, 14% health care, we compare well with the weighted average of our peers. However, considering our company scale, we expect to be better than the competitive weighted average. So getting the core SG&A of around 12% of sales, we think puts us in a top third of our competitors on an absolute basis, and about 350 basis points below the weighted average based on business mix.
As we go about this work, as you properly pointed out, this is not just about reducing the number of heads it's about finding ways to do the work differently in order to be more agile. That's one of the reasons we've reduced the number of levels within the organization, the hierarchy we’ve talked before about reducing the number of Vice Chairman by 50%, reducing the number of Vice President by 15%, reducing the number of Directors. And while we’ve done that, we’ve digitized the organization to allow them to operate effectively with less overhead.
We have also been working to make the process from the creation of the product to selling it in the market more linear. During the time of many acquisitions in the past, we became less linear, we had too many (inaudible), too many people you had to check with, and we are going through a process now in our brand building organization of making that much more linear. Those are two examples. The third example is obviously the creation of global business services, which has saved us about billion dollars in back office activities from 2000 to 2012.
And your next question is from the line of Bill Chappell from SunTrust. You may proceed.
Bill Chappell - SunTrust Robinson Humphrey
Just one quick housekeeping; Jon, I don't remember if you said, but for the Venezuela, Argentina and the pension issue, is there any one quarter that impacts or is it all four quarters? And then second just, on kind of looking at the simple changes, any thoughts on another round of compaction. That seems like that will be the easiest way to kind of cut costs and drive sales. It would affect a big part of your organization. And I ask that because this seems like the time of the year that if you are going to do it for next year, you would start announcing it?
So, first on the housekeeping question, the pension impact is ratably spread across the quarters. The Venezuela Argentina thing is more a front half issue because we anniversary the new law in February in Venezuela.
Bill, as you would imagine, compaction is always on our radar screen in our innovation program. It's good for consumers because it helps them reduce the amount of space product takes, it reduces fillers and it's good for retailers because it reduces the amount of shelf space they have to use. It's good for the environment. It reduces carbon emissions from trucks carrying it around. It reduces ethylene in the environment. So, we are always looking at compaction and every one of our innovation programs has some kind of compaction within it. I’d encourage you when you think about compaction to think about Tide PODS. It's the most compact laundry detergent available. It's got the highest percentage of actives of any laundry detergent in the market and it cleans as well, if not better, than six competitive products at the same time. So, we've just begun the launch. We're going to be rolling it out around the world and that would be a great example of the benefits of compaction.
And your next question is from the line of Jason Gere from RBC Capital Markets. You may proceed.
Jason Gere - RBC Capital Markets
Just one thing, looking through your slide deck when you talk about some of the assumptions for the year, you're talking about global market growth of 4% to 5%. Hopefully, I'm not wrong here but I think you guys were talking about 4% over the last couple of months when you gave that number. So when most of your peers are talking more cautiously about Western Europe and even the U.S., it seems like this numbers actually elevated a little bit. So I was just wondering if you can reconcile that?
You know if you think about -- if we just break it down into pieces, what we’re seeing before was developed market growth of about 1.5 points, developing market growth of about 8 points which got us to 4 on a global basis. What we've seen more recently is a slight uptick in developed, primarily in June and that's growing now at 2 points, developing -- we've actually seen some acceleration, but it’s up at about 10 points right now. So that’s how you get to the 5. But these numbers are very volatile. They move around all the time and that’s why we’re describing it as a range of 4 to 5. So we’ve seen 5 recently. I don't know what that necessarily is representative of the future. We expect it to be somewhere between 4 and 5.
This is exactly why the productivity program is so important because should that marker growth slip, we still need to have the fuel to invest in innovation and to invest in growth and that's why we’ve got the $10 billion productivity program.
Your next question is from the line of Alice Longley from Buckingham Research. You may proceed.
Alice Longley - Buckingham Research
Could you tell us what the U.S. alone look like in the fourth quarter? Was volume still down to single digits and value sales down, say 2% to 3% here? And then going into the first quarter, is our value sales likely to be down more because of less pricing? And the second part of my question is, could you comment on the quality of what you’re doing to improve your share. And as an example, in blades, it looks like your share is improving because of improvement with disposables and much heavier promotional activity. And I'm wondering if that's how you want to gain share?
Our U.S. business is strengthening, as Jon talked about in his remarks. Some of the activity is correcting price disequilibrium. But it's important that much of it also is innovation. And the innovation is also what's driving the improved shares. An example of that would be continued growth on ProGlide, for example, in blades and razors. And we have future innovation coming, so we're expecting the U.S. business to continue to strengthen.
Your next question is from the line of Mark Astrachan from Stifel Nicolaus. You may proceed.
Mark Astrachan - Stifel, Nicolaus & Co.
I was wondering why do you think the decision to focus on your ten largest developing markets or, as you said, not going into other new markets, is the right decision for the long-term? Why is it not shortsighted where it gives competitors an opportunity to develop a beachhead, so to speak, and ultimately put you at a disadvantage where you have to play catch up again?
So, fully, fully agree with developing markets being a priority and a strategic imperative as we look forward. We have significant opportunity in those ten large markets. And by markets, you shouldn't confuse the word market with country. These are often times regions or country clusters where we go to market very similarly. So we refer to them as one market. If you look at what's ahead of us in developing markets, I think it's an incredibly exciting thing for both consumer products companies in general, and particularly Procter & Gamble.
We're looking at population growth to 2020 of 700 million people globally, 95% of which are going to be in developing markets. We're looking at the addition of 1.5 billion middle income consumers, 98% of which are going to be in developing markets. We are I think at the precipice of one of the biggest trade-up cycles that we’ve ever seen. You have got growing populations, growing income levels and very aspirational consumers. So, we couldn’t agree more with the need to be fully present and we feel comfortable with the top 10 as being actually the way to maximize our presence in those markets and we will get to the others as time and funding allow.
Your next question is from the line of Linda Bolton Weiser from Caris & Company. You may proceed.
Linda Bolton Weiser - Caris & Company
I was wondering, Bob, if you could address this company culture a little bit, because I remember when you first became CEO, sitting in meetings with you and you talked a little bit about it and how you felt. There are needed to be some tweaking of the culture and you sounded like a tough guy quite frankly that there needed to be, I forgot your exact words, but ramifications for non-delivery etcetera. Can you talk about how the culture has been tweaked a little since you have been CEO and in what ways you have been happy with the cultural change or not happy or maybe you think there needs to be more or just talk about that issue a little bit?
Well, I think we are making progress in strengthening the culture and what I mean by that is, I’ve talked about in my remarks accountability. We hold people accountable to Procter & Gamble Company. If you remember in my remarks, I talked about bonus programs paying roughly on average 35% payout. That's a lone number, that's painful. I also mentioned accountability in terms of leadership. If you compare the leadership that we have today versus the leadership we had three years ago, you would see substantive changes particularly in the Beauty business.
I also talked about the need to establish our cultural productivity something that Procter & Gamble hasn’t had during my 32 year career. We’ve had periods of productivity improvement, but they tend to be one-off or episodic and what we are trying to create now is the productivity constancy where we constantly work to improve the organization, the organization effectiveness, the leadership of the organization, the way we do our work, so that we can constantly be turning up the money that we need to invest even in slow macroeconomic environments. So, we’re working very hard on the culture, we’re working very hard on the leadership of the company and frankly we just all got together a couple weeks ago and I’m very encouraged by leadership team we have now. In many ways, I think that I just wish I'd done it three years ago, I think we've got the right team.
And your next question is from the line of Victoria Collin from Atlantic Equities. You may proceed.
Victoria Collin - Atlantic Equities
I’d just like to ask a question about the steps that you’re going to be taking to improve and hopefully we accelerate the volumes in the Beauty category. I assume lot of it down to the skin care, particularly in developed markets, but just what steps are being taken? Is it simply trying to capture the consumer or the other productivity or execution issues that you are taking on as well that you hope to improve things? And then secondly, I guess I want to congratulate you on the Olympics advertising. I think P&G has done really excellent job aligning themselves with the competition. And do you see this is making contribution to sales in the first half of next year, will there be a second lag of advertising now to link P&G or link your name to the brands and get the sales up. And is it one of the ways that you're looking to raise advertising and also regenerate sales in the developed markets?
Relative to Beauty, Beauty is one of the primary focuses of our 40-20-10 focus program. There are parts of our Beauty business globally that we’re very happy with. But there are also parts that we’re unhappy with. We’ve talked for some time about Pantene North America. We’ve talked for some time about Olay North America. And we’re working through innovation, through better consumer insights, through better advertising to improve the results of those brands.
Secondly on the Olympics, thank you very much for your comments. The Olympics sponsorship is really a terrific example of Procter & Gamble scale brought to life. It's the largest multi-brand commercial program that we’ve ever done. We've got 34 brands, and we’ve got displays right now in more than 4 million stores around the world, and that last for six-month period. It started last March, April as you know, probably with Mum's Day in London, and it's going to continue after the Olympics this week. In fact, after the Olympics and in the next couple of weeks, we start the Paralympics which is part of our sponsorship as well. The program has got a 50% higher return on investment versus our typical single brand program. We've generated a lot of awareness through social media with 6 million views of advertising online so far. And the benefits of the program extend well beyond the London Olympics as I said. We still expect to fully deliver about $0.5 billion in incremental sales over a 12-month period, and we've consistently demonstrated a 5% to a 20% increase in sales when retailers run Olympic displays.
We also have seen a tremendous advantage when our brands are linked back to our company, the Procter & Gamble Company. While this looks like something new, it really isn't all that new. When I worked on the new brand in Procter & Gamble in 1980, we were allowed to put, this is from Procter & Gamble, on the brand for six months during the first six months of launch. When I was living in Asia from 1991 and 2001, we ended every ad that we had in Asia with a placard that talked about Procter & Gamble and improving lives. And we have experienced throughout the world that Procter & Gamble is the glue that pulls all the brands together enabling these massive multi-brand merchandising and displays, but also leading to the credibility of the brands and the credibility of the company.
As you can imagine, we've researched this in many countries around the world and this is a positive connection. So, we will continue it, and obviously we will review our Olympic effort afterwards and we'll improve it the next time.
And your next question is from the line of Leigh Ferst from Wellington Shield. You may proceed.
Leigh Ferst - Wellington Shield
My question is about how you're managing your focus on the ten emerging markets. What changes have you made since you've announced this focus, and to what extent are they managed differently from established markets?
It's a great question, Leigh. What we do is, we get the leaders of the company together, the GBU leaders and the geography leaders. And we work to put together a total company plan. So, for example, if we were to introduce a new category in the country, we would look at what other categories space up against the consumer, against the retailer, against the competitor, and make sure that the plan we put in place in that country is synchronized amongst all the business units. We make sure that the strategies are consistent across business units and it's really a matter of trying to bring Procter & Gamble scale to bear to win in that market.
Your next question is from the line of Tim Conder from Wells Fargo Securities. You may proceed.
Tim Conder - Wells Fargo Securities
I wanted to circle back to the restructuring tracking just more from a housekeeping item here. It would be helpful rather than every six months or year if we could get that on a quarterly basis. Several other companies much smaller than Procter do provide that that we’re familiar with. The main question though that I have, would be related to part of your guidance here and if you could just maybe expand upon it. The share repurchase when you gave guidance a quarter ago, basically you had no share repurchase for fiscal ‘13 when you gave some updates before. Now you do yet the EPS is in essence unchanged. Jon, is something changed on the expense outlook here to work that dynamic? Is that the part of the investment that you’ve talked about earlier here? If you could just expand on that, maybe give a little reconciliation.
Good question, Tim. Basically we haven't built-in any significant benefit from share repurchase because we haven't finalized the timing of share repurchase. And that timing will have an impact on how much earnings per share, actually earnings per share benefit is there for the year. But, obviously, that provides some degree of flexibility from a lot to a little depending on when we do it. There is nothing that's changed in the expense environment. If anything, things have probably improved a little bit. We've talked about commodities being essentially flat, whereas when we were talking in Paris, for example, we were talking about more of a headwind in commodities. So, we probably have a little bit more flexibility than we had when we were speaking in June.
Your final question comes from the line of Caroline Levy from CLSA. You may proceed.
Caroline Levy - CLSA
I think one of the more interesting question or focuses was on management, because some of the problems that have happened over the last several years have been related to maybe who was running various businesses and so on. Can you just run us through if you think at this point in each of your divisions where you need to be already, are there still going to be some tweaks to leadership? And when you talk about bonuses and compensation, how much do people feel that what they do within their existing business is going to drive their comp versus the total P&G performance, and that sort of talks to the benefit of being one large company versus you are competing against some people who just do Oral Care or they just do Diapers, or they just do Prestige Beauty. So, how do you get management to everything they need to do if they feel that maybe the whole compensation structure doesn’t (inaudible)?
I’m happy with the leadership team that we have in place today, very happy. And as I said, I think if you compare the leadership team we have today versus the one we had three years ago, you’d see significant differences. Number two, the compensation systems of the company very much favors the shareholder. Most of us have over 95% of our net worth in Procter & Gamble stock. This company has been a company that in the early days of the company created a profit sharing trust program. Basically, all of my retirement is based in Procter & Gamble stock. I have no pension other than Procter & Gamble stock. Our Medical Care is supported by Procter & Gamble stock. Our bonus programs are based on Procter & Gamble stock. So, our leadership is very, very much focused on total shareholder return and Procter & Gamble stock and that's why the comment I made about the payout being only averagely 35% that's still going to be paid in Procter & Gamble stock and restricted shares. So, that's significant.
Secondly, while it is true that part of the compensation program is a mixture of business unit performance as well as company performance, even when we do that metric, we have a company factor in there. And when the leadership team got together last week, we suggested and we all agreed that we focus on seven metrics for the entire organization and we are doing that. So, we are united more than ever before, as I have said in my remarks, on those metrics that matter most to total shareholder return and every leader of the company is focused on that.
Just one other point Caroline, when you were talking about the challenges of managing a big company as opposed to smaller focused company. I think it's important to understand how we actually manage the business which is actually very focused. The daily business of the company is managed by leaders of individual business units. They are focused on only one thing, they have one job; growing sales and profit of their business and they get to do that with all of the assets of the Procter & Gamble Company behind them. And unlike many of their competitors, they don’t have to concern themselves with back office activities, treasury, tax, investor calls. They have got one job. So, it's actually a very focused approach and more focused than even some of their smaller competitors.
Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a good day. Read the rest of this transcript for free on seekingalpha.com