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Gillette Reports Record Q1 Performance
Apr 30, 2004
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Personal care appliance maker The Gillette Company reported record first-quarter net sales, net income, and diluted net income per common share. The company said the strong results were due to the strong sell-in of new products, the ongoing strength of existing products, favorable currency impact, increased overhead cost savings, and manufacturing productivity.

Net sales for the quarter ended March 31 rose 13 percent to U.S. $2.24 billion from $1.97 billion in the first quarter last year, with notable strength in Latin America, Russia, Turkey, and Eastern Europe. Favorable foreign exchange, in Europe and to a lesser extent in Asia, contributed 7 percentage points to the net sales gain.

Profit from operations for the quarter increased 46 percent to $556 million from $380 million last year. The company said that combination of strength in higher-margin premium products across all major product lines, plus strong manufacturing productivity and overhead cost reductions, drove the significant profit gains.

Net income for the quarter rose 43 percent to $376 million from $263 million last year, driven by the strong operating results as well as a lower effective tax rate, which decreased 1 percentage point to 29 percent.

Diluted net income per common share rose to a record first-quarter high of 37 cents, up 48 percent from 25 cents a year ago.

"The optimism that I previously expressed is reflected in our first-quarter results," said James M. Kilts, chairman, president, and CEO. "All the pieces are coming together. We have the ongoing strength of our existing products and great trade acceptance of our new products driven by world-class marketing programs; we have increased manufacturing productivity and cost savings resulting from two years of focus on the fundamentals of the business; and we have high growth in key international markets."

Mr. Kilts said that Gillette anticipates continued momentum in the second quarter, driven by the sell-in of M3Power, its premium micro-power wet shaving system, and several new oral care and personal care products, followed by moderating growth in the second half as shipments drop below consumption.

Mr. Kilts said that the battery category continues to be challenging. "While Duracell maintained dollar share for the quarter, the dynamics of the category are still unstable," he said. "We will continue our focus on building the equity of our premium Duracell brand. However, we also will continue to adjust our efforts to maintain our competitive position. Time will tell if these tactical adjustments will be enough to achieve our objectives."

Business Segment Results
Blades and Razors net sales of $1.04 billion for the first quarter climbed 16 percent, including an 8 percent increase from foreign exchange. Profit from operations of $417 million was up 26 percent, compared with a year ago. Sales gains were strong in all regions, fueled in part by improving demand in Latin America and ongoing strength in Russia and India. Despite increased competitive activity during the quarter, Gillette's global blade value share was unchanged versus a year ago at 72.8 percent. Global razor volume increased 5 percent, with both the Mach3 and Venus franchises growing 10 percent.

Duracell net sales of $414 million for the quarter rose 8 percent, resulting from favorable foreign exchange of 6 percent, the acquisition of the Nanfu battery business in China and the positive effect of lower trade and consumer spending, the company reported. Profit from operations of $74 million nearly doubled from the prior year, reflecting manufacturing efficiencies and overhead cost reductions. U.S. category sales declined from a year ago, when they had been up sharply as a result of homeland security concerns and incremental military sales. Europe, Latin America, and AMEE (Africa, Middle East and Eastern Europe) all reported solid sales increases in this year's first quarter due to strong category growth.

Oral Care net sales of $315 million for the quarter climbed 7 percent, due to the favorable effects of foreign exchange. Sales were tempered by sales of the CrossAction Vitalizer manual brush and the CrossAction Power battery brush, which were launched in North America during the first quarter of 2003. Profit from operations of $55 million was 13 percent higher than the prior year. Oral-B's leading global value share of total brushing increased 1.3 percentage points to 34.2 percent, the largest share gain among global manufacturers. In the U.S., Oral-B's value share of total brushing increased by 2 percentage points to 37.7 percent, with particular strength in the battery segment, where CrossAction Power drove Oral-B's value share up 10.9 percentage points to 25.5 percent.

Braun net sales of $259 million for the quarter grew 21 percent, including a 10-percent gain from foreign exchange. Profit from operations of $21 million was up from a $6 million loss reported the prior year. Sales growth reflected strong performance in the AMEE region, particularly in Russia and Turkey, as well as a favorable mix of higher-margin male shavers and higher-priced household appliances. Profit in the quarter was driven by favorable mix of higher-margin products, particularly male shavers and female epilators, tempered somewhat by currency-related increases in European-based manufacturing costs.

Personal Care net sales of $210 million for the quarter were up 14 percent, including a 7 percent gain from foreign exchange. Profit from operations of $13 million was up substantially from a break-even level the year before. Sales gains were driven by strong shave preparations performance in all regions. In addition, Gillette increased its value share of shave preparations in Europe by 3 percentage points to 37 percent. Profit growth was fueled by the success of new products, ongoing manufacturing savings, and lower overhead costs, the company said.

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