P&G Reports $0.98 EPS, Up 17%, on 9% Sales Growth; Announces Plan to Create Stand-Alone Coff...(ightly versus the year-ago period as a r...),Health

Gross margin was down 110-basis points to 51.8% of net sales during the quarter. Higher commodity and energy costs had a negative impact of over 150- basis points. These were partially offset by volume leverage and cost savings projects. To offset the significant commodity and energy cost pressure, the company has announced a number of price increases which go into effect during the January-March quarter.

Selling, general and administrative expenses (SG&A) were 30.0% of net sales, a 90-basis point improvement versus the prior year period. Overhead spending as a percent of net sales was down due to overhead cost controls, Gillette synergies and scale leverage. This more than offset higher marketing spending as a percent of net sales to support brand initiatives.

Other non-operating income increased in-line with previous guidance, due to the gain on the sale of the company's Western European Family Care business which closed on October 1.

Operating cash flow was $4.1 billion, an increase of 69 percent versus the base period. Operating cash flow increased behind higher earnings and a significant improvement in working capital versus the year-ago period. Free cash flow as a percentage of net earnings was 107%, well ahead of the company's 90% annual target. Capital expenditures were 3.0% of net sales during the quarter.

The company repurchased $2.9 billion of P&G stock during the quarter as part of the company's previously announced share repurchase program. The company has repurchased $5.5 billion of P&G stock since the inception of this program in July 2007.

Business Segment Discussion

The following provides perspective on the company's October - December quarter results by business segment.

Beauty GBU

-- Beauty net sales increased 10 percent during the
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