Reported operating margin
Procter & Gamble (PG), or P&G, reported a slight improvement in the core gross margin in 4Q15. The company’s core gross profit margin rose by 1.1% to 48% in 4Q15 compared to 4Q14. The core gross margin excludes incremental restructuring charges. The operating margin for 4Q15 was reported at 5.2%, compared to 16.1% in 4Q14.
Reason for the fall
The operating margin fell mainly due to the Venezuela charge of 11.4%. However, excluding all of the charges, the core operating margin rose by 0.9% to reach 18.1% in 4Q15 compared to 4Q14. The rise in P&G’s core margin was due to productivity savings.
The selling, general, and administrative, or SG&A, expenses as a percentage of sales in 4Q15 fell by 0.1% to 31.3%. However, core SG&A expenses as a percentage to sales rose by ten basis points to 31%.
Cash flow productivity
Despite a weaker top line, P&G is placing emphasis on driving value creation and cash. P&G generated $11.6 billion in adjusted free cash flow, with 102% adjusted free cash flow productivity. P&G is one of the strongest cash generators among competitive peers and mega-cap companies like Unilever (UL), Colgate-Palmolive (CL), and Kimberly-Clark (KMB).
P&G’s free cash flow fell by ~0.7% to $2.7 billion for 4Q15, while Colgate-Palmolive’s free cash flow fell by ~79% to $0.3 billion for 2Q15. On the other hand, Kimberly-Clark’s free cash flow for 2Q15 rose by ~150% to $0.5 billion. The end of the fiscal year for Procter & Gamble is on June 30, 2015. It’s on December 31, 2015, for Colgate-Palmolive and Kimberly-Clark.
At the Barclays Global Consumer Staples (XLP) conference, P&G highlighted its four transformational moves to revive its top line and improve its profitability. The four transformations were in:
- supply chain
- rededication to category business models on superior product offerings
These transformations could help the company improve its margins and profitability in the current macroeconomic conditions. To learn more about P&G’s updates on growth and transformational moves, please read A Procter & Gamble Investor Update: Growth and Transformational Objectives.
P&G has exposure in the SPDR S&P Dividend ETF (SDY). It accounts for 1.4%[1. Updated on October 14, 2015] of the portfolio’s total weight.