Personal care product maker The Gillette Company today announced full-year and fourth-quarter 2002 results. For the year, Gillette reported strong gains in both net sales and net income as its blade and razor business reached a record high global market share for the second consecutive year and its oral care business scored strong sales and market share gains in both manual and power toothbrushes. In batteries, the company said profit increased despite highly competitive market conditions that led to a major initiative to reduce pricing and promotional activity, intended to restore growth and value to the Duracell brand.
For the year, net sales increased to U.S. $8.45 billion, a gain of 5 percent from $8.08 billion in 2001. Volume increases accounted for nearly the entire sales gain. Foreign exchange had no material effect on reported sales, as strength in European currencies was offset by the unfavorable impact of weaker currencies in Latin America and in some emerging markets.
Net income from continuing operations for the year rose to $1.21 billion, 33 percent higher than the prior year. Diluted net income per common share from continuing operations increased 33 percent, to $1.14, compared with 86 cents a year ago. The adoption of SFAS 142 resulted in a total-year pre-tax decrease in amortization of $34 million compared with 2001.
Profit from operations for the year 2002 climbed to $1.81 billion, 21 percent above the previous year.
For the quarter, net sales rose 5 percent to $2.53 billion from $2.42 billion in the fourth quarter of 2001. A volume increase of 2 percent was complemented by a 3 percent positive impact of foreign exchange.
Net income from continuing operations increased 69 percent, to $339 million, compared with $200 million in the prior year. Diluted net income per common share from continuing operations of 32 cents grew 68 percent, from 19 cents in 2001. The adoption of SFAS 142 resulted in a fourth-quarter pre-tax decrease in amortization of about $9 million, compared with the prior year.
Profit from operations for the quarter was $510 million, up 54 percent from the prior year.
"We finished last year with good momentum that is carrying into 2003," said James M. Kilts, chairman and chief executive officer. "We made good progress last year on all three aspects of our turnaround -- financial, strategic and improving costs and capabilities. Our financial accomplishments are evident in gains that we made in all key metrics, including working capital, capital expenditures, free cash flow and return on assets," he said.
Business Segment Results
Blade and Razor sales of $894 million for the fourth quarter increased 5 percent. Profit of $310 million was up 1 percent, compared with a year ago, reflecting the impact of increased advertising and incremental Functional Excellence costs. The Mach3 and Venus franchises continued to drive category growth and were major contributors to Gillette's record global blade and razor value share. The two brands also accounted for 32 percent of the global market and 40 percent of the U.S. market. In the U.S., Mach3Turbo, launched in March 2002, is the Company's most successful line extension ever. Mach3Turbo is now the number one razor with a value share of 33 percent. For the total year, sales of $3.44 billion were 7 percent higher than in 2001, and profit of $1.30 billion increased 14 percent from the prior year. These results reflect the continuing success of Gillette's trade-up strategy, as the product mix increasingly favors high-margin premium shaving systems.
Duracell sales of $656 million for the quarter decreased 2 percent, while profit climbed 32 percent, to $110 million. Margin in the quarter improved considerably as substantial cost savings and lower goodwill amortization more than countered the negative effect of unfavorable shifts in mix among brands, pack sizes and retail channels, as well as costs associated with Functional Excellence. For the total year, sales of $1.90 billion fell 3 percent, while profit of $233 million increased 7 percent, reflecting manufacturing efficiencies, overhead cost savings and lower goodwill amortization. Importantly, Duracell achieved its goal of maintaining its leading market share for the year. Earlier this month, Duracell announced a price-deal realignment program for the U.S. that will enhance Duracell's competitiveness, increase the potential for growth in the battery category and simplify comparisons for consumers.
Oral Care sales of $387 million for the quarter increased 11 percent, and profit of $59 million decreased 23 percent. The strong sales growth reflected gains by the Oral-B battery toothbrush and Oral-B Stages children's toothbrushes in North America and Europe and entry-level manual toothbrushes in developing markets. These increases were partially offset by unfavorable pricing and higher promotional support resulting from increased competitive activity in the battery segment. The quarter's lower profit and margin resulted from higher advertising and promotional support behind new products, some shift in mix toward battery power and incremental Functional Excellence costs. For the year, sales of $1.25 billion grew 9 percent from a year ago. Profit of $222 million decreased 7 percent versus the prior year, due to increased marketing spending, including a double-digit boost in advertising, and incremental Functional Excellence expenses. Gillette's value share of the total brushing market in the U.S. rose 1.6 points in 2002 to 30.5 percent, reflecting the strong performance of CrossAction and Stages manual toothbrushes and the growth of Braun Oral-B premium battery power toothbrushes.
Braun sales of $371 million for the quarter were 12 percent higher than a year ago, or 6 percent in constant currency. Profit of $28 million decreased 13 percent. Sales gains were driven by the strong performance of new electric shavers, including the world's number one selling Braun Syncro system, in all major markets. In North America, strong consumer demand drove Braun shaver shares higher during the key Christmas selling period. Increased marketing expenditures and significant incremental Functional Excellence costs more than offset favorable product mix and manufacturing cost savings. For the year, sales of $1.06 billion increased 8 percent, while profit of $75 million dropped 23 percent, also due to increased marketing expenses and incremental Functional Excellence costs.
Personal Care sales of $221 million for the quarter were 3 percent higher than in the previous year, and profit of $18 million decreased 12 percent. Gains by PowerStripe antiperspirants and deodorants in North America, as well as sales growth in Europe, particularly in male and female shave preparations, were partially countered by softness in Latin America, due to ongoing economic weakness and increased competitive activity. The decline in profit reflected higher marketing expenses and incremental Functional Excellence costs that were partially offset by savings related to strategic sourcing initiatives. For the year, sales of $816 million increased 2 percent, and profit of $51 million fell 25 percent, due to increased marketing spending for new products and Functional Excellence costs.
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