< Return to Bulls pageFinancial Highlights and Outlook:
Key figures to observe at the end of the 2006 fiscal year is the impressive growth in sales, diluted net earnings per share and operating cash flow. The dilution impact from the acquisition of Gillette in 2005 contributed to an 8-9% decrease in EPS but nonetheless 2006 EPS grew 4% over the prior year to $2.64. Sales grew at a 20% rate in 2006 due to the effect of acquisitions, divestitures and foreign currency fluctuations. The company has maintained substantial Free Cash Flow and has continued to raise its dividends per common share by 8-12% annually. Moreover, the Return on Invested Capital (ROIC), a measure of how effectively the company uses its equity and debt financing to grow earnings, has increased from 10.8% to 24.1% from FY01-05 but dropped to 9.1% in FY06 due to the Gillette acquisition. These numbers have consistently been above the company’s weighted average cost of capital demonstrating Procter and Gambles’ effectiveness at generating superior returns on its investments.
Looking ahead we expect sales to grow organically at 10-12% annually due to strengthening demand in emerging markets but offset to a certain extent by competitive pressure from rivals. Consequently operating margins are expected to improve gradually due to reduced costs from core businesses, growth in high margin segments, and cost synergies from the Wella and Gillette acquisitions. We expect capital expenditures to be consistent at around 3.9% of sales over the next five years.
Unlevered Free Cash flow, which ignores the impact of debt financing, is expected to have a CAGR of 10.2% over the 5-year period reflecting an impressive cash position for the firm to continue to pay substantial dividends and grow by making strategic acquisitions.
