The Procter & Gamble Company (NYSE: PG) announced second quarter diluted net earnings from continuing operations of $1.11 per share, an increase of 10 percent. Core EPS was up three percent to $1.13 per share, $0.02 per share above the top end of the Company's guidance range. Net sales increased two percent to $21.3 billion driven by six percent volume growth which was partially offset by unfavorable foreign exchange and mix impacts. Organic sales grew three percent.

The Company continued to deliver broad-based volume and market share growth. Volume was up six percent behind growth in all major geographic regions, 16 of 17 top countries, five of six business segments and 19 of 23 billion-dollar brands. Market share was up in all geographic regions and the majority of key countries and brands. Businesses representing about 60 percent of net sales maintained or grew market share.

"We are expanding market shares by touching and improving the lives of more consumers in more parts of the world, more completely through our innovation and expansion plans," said Chairman of the Board, President and Chief Executive Officer Bob McDonald. "This is driving strong volume and sales growth ahead of market levels. Core EPS is ahead of year-ago levels, and we are on track to deliver seven to nine percent growth for the year."

Executive Summary

Net sales increased two percent and organic sales grew three percent for the quarter.

Diluted net earnings per share from continuing operations increased 10 percent to $1.11.

Core EPS was $1.13, an increase of three percent. These results were driven by benefits from organic sales growth, cost savings, a decline in the effective tax rate and a reduction in shares outstanding. These benefits were partially offset by negative impacts from higher input costs and higher marketing and portfolio expansion investments.

Market share was up in all geographic regions and in-line or higher in 12 of the top 17 countries and for 16 of 23 billion-dollar brands.

October - December Quarter Discussion

Net sales increased two percent to $21.3 billion on six percent unit volume growth. Organic sales, which exclude the impact of acquisitions, divestitures and foreign exchange, were up three percent. Volume growth was broad based, with growth in all major geographic regions, 16 of 17 top countries, five of six business segments and 19 of 23 billion-dollar brands. Volume increased double digits in developing regions and low single digits in developed regions. The combination of pricing and mix reduced net sales by two percentage points. Pricing was in line with the base period. Product and geographic mix reduced net sales growth by two percentage points. Unfavorable foreign exchange decreased net sales by two percentage points.

Market share continued to grow behind the Company's innovation and expansion plans. Share was up in all geographic regions and in line or higher in 12 of 17 top countries and 16 of 23 billion-dollar brands. Global market share is now up versus the prior three, six and 12 month periods.

Operating margin contracted 210 basis points primarily driven by lower gross margin. Gross margin declined 190 basis points primarily due to higher commodity costs and unfavorable product mix which more than offset manufacturing cost savings and volume scale leverage. Selling, general and administrative expenses (SG&A) as a percentage of net sales increased 20 basis points behind investments to support the Company's innovation and expansion plans.

Diluted net earnings per share from continuing operations were $1.11, an increase of 10 percent mainly due to a lower effective tax rate driven by favorable tax adjustments and a reduction in shares outstanding. Core EPS, which is diluted net earnings per share from continuing operations excluding charges for pending European legal matters and the benefit of a significant adjustment to an income tax reserve, was $1.13, an increase of three percent. Diluted net earnings per share decreased 26 percent to $1.11 primarily due to the gain on the divestiture of the global pharmaceuticals business in the prior year period.

Operating cash flow was $2.9 billion for the quarter, while free cash flow, which is operating cash flow less capital spending, was $2.1 billion. The Company repurchased $0.5 billion of shares during the quarter and returned another $1.4 billion of cash to shareholders as dividends.