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P&G Reports EPS of $0.92, Up 16% Behind 8% Sales Growth

Wednesday, October 31, 2007 General News
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CINCINNATI, Oct. 30, 2007 The Procter & GambleCompany (NYSE: PG) announced net sales growth of eight percent to $20.2billion for the quarter. Every reportable segment delivered mid-single digitor higher sales growth. Organic sales were up five percent for the quarter,in-line with the company's four to six percent target growth range. TheFabric & Home Care, Baby & Family Care and Grooming segments led the growthbehind continued strong results on product initiatives across the globe.
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Earnings per share were up 16 percent to $0.92 per share, including a one-time tax benefit which increased EPS by $0.02 per share. The company's EPSgrowth, excluding the one-time benefit, was 14 percent. Earnings per sharegrew primarily behind strong sales growth and a 30-basis point improvement inoperating margin. The company raised its fiscal year EPS outlook by $0.02 toreflect the one-time tax benefit.
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"The fiscal year is off to a good start," said A.G. Lafley, Chairman ofthe Board and Chief Executive Officer. "P&G continues to deliver broad-basedtop and bottom-line growth across its portfolio of businesses and geographies.This momentum, along with a robust initiative pipeline for the year, gives usconfidence that P&G will deliver another strong year of growth."

Key Financial Highlights

Net sales for the quarter increased eight percent to $20.2 billion behindfive percent volume growth and a three percent favorable foreign exchangeimpact. Each segment delivered year-on-year sales growth of six percent orhigher behind continued success on product initiatives. A number of thecompany's key brands, including Charmin, Dolce & Gabbana, Downy, Febreze,Gillette Fusion, Head & Shoulders, Hugo Boss, Pampers, Pringles and Tidedelivered double-digit sales growth. Organic sales, which exclude the impactsof acquisitions, divestitures and foreign exchange, increased five percentduring the quarter.

Diluted net earnings per share increased 16 percent to $0.92, including atwo percent one-time tax benefit related to a change in the German statutorytax rate. Net earnings increased 14 percent to $3.1 billion behind higheroperating profit. Operating profit was up nine percent driven by sales growthand a 30-basis point margin improvement.

Gross margin was up 10-basis points to 52.9% of net sales during thequarter. Higher commodity costs had a negative impact of approximately 80-basis points. These were more than offset by volume leverage, cost savingsprojects and pricing.

Selling, general and administrative expenses (SG&A) were 31.0% of netsales, 20-basis points lower than the prior year period. Overhead spending asa percent of net sales was down due to overhead cost controls, Gillettesynergies and volume scale leverage. This more than offset higher marketingspending as a percent of net sales to support key brands across the globe.

Operating cash flow was $3.2 billion, an increase of nine percent versusthe base period. Working capital used $220 million more cash versus the baseperiod, primarily due to business growth. Free cash flow as a percentage ofnet earnings was 87%, roughly in-line with the year-ago level. Capitalexpenditures were 2.7% of net sales during the quarter.

The company repurchased $2.6 billion of P&G stock during the quarter aspart of the company's previously announced share repurchase program. Thecompany began purchasing shares under this program in July 2007.

Business Segment Discussion

The following provides perspective on the company's July-September quarterresults by business segment.

Fiscal Year and October-December Quarter Guidance

For the 2008 fiscal year, the company expects organic sales to grow byfour to six percent, in line with its long term target range. The combinationof pricing and product mix is expected to have a neutral to positive onepercent
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