Earnings Rise for Procter and Colgate

Procter & Gamble lowered the high end of its profit forecast for the year after posting a profit that fell a penny short of analysts’ average estimate. Colgate said that rising costs hurt its profit margins in its last quarter but that the income still met forecasts.

Procter & Gamble, the world’s largest maker of household goods, now expects its costs to rise about three times as much at it had at the start of the year, with increases in diesel, resin and other materials, the chief financial officer, Jon R. Moeller, said.

Procter has implemented or announced increases across brands representing about 50 percent of United States sales but is not raising prices as much as it did in 2008, the chief executive, Robert A. McDonald, said.

Procter & Gamble earned $2.87 billion, or 96 cents a share, up from $2.59 billion, or 83 cents a share, a year earlier. Revenue in the period, which ended March 31 and was the third quarter of the company’s fiscal year, rose to $20.23 billion from $19.18 billion.

Stock in Procter, which is based in Cincinnati, rose 48 cents, to $64.50 a share.

Colgate, which was reporting results for its first quarter, said it earned $576 million, or $1.16 a share, up from $3.57 million, or 69 cents a share, a year earlier. Sales rose to $3.99 billion from $3.83 billion.

Excluding one-time items from the year-earlier period, its net income was down 8 percent.

The chief executive, Ian M. Cook, said Colgate raised prices in many categories and in all its markets, and will keep doing so, but he declined to provide details.

Stock in Colgate, which is based in New York, rose $1.91, to $82.97 a share.

 

Caterpillar Surpasses Earnings Expectations and Raises Its Outlook for the Year

Caterpillar, the heavy equipment maker, said Friday that its first-quarter profit soared more than fivefold. It also raised its financial outlook for the year as a growing economic recovery increased demand for its mining and construction equipment.

The results topped analysts’ expectations, and shares rose $2.77, or 2.46 percent, to $115.41.

Its first-quarter profit reflected an industrial sector that is growing again, with most of its sales growth coming from the sale of big machines. When the recession hit in 2007, construction and mining companies cut back their spending on heavy machinery first, Mike DeWalt, Caterpillar’s director of investors, told analysts Friday.

For more than two years, companies held back their investment. But now they appear to have no choice but to replace aging machinery, raising Caterpillar’s sales, Mr. DeWalt said.

That means spending is likely to continue as companies replace more vehicles and even expand on growing demand.

The company said its net income climbed to $1.23 billion, or $1.84 a share, from $233 million, or 36 cents a share, in the period a year earlier.

Revenue rose 57 percent, to $12.95 billion from $8.24 billion.

Analysts had expected earnings of $1.30 a share on revenue of $11.43 billion.

Revenue at Caterpillar’s machinery and power systems division surged to $12.28 billion from $7.55 billion.

Based on its higher-than-expected sales, Caterpillar raised its 2011 outlook, forecasting revenue of $52 billion to $54 billion and net income of $6.25 to $6.75 a share.

It previously forecast revenue above $50 billion and net income of roughly $6 a share.

Caterpillar said its outlook would have been higher if not for the earthquake and tsunami in Japan, which damaged many of its suppliers. Supply disruptions and delays are likely to cost it $300 million in lost sales and $100 million in lost profit.

 

Stocks and Bonds: Earnings Upswing Propels A Broad-Based Rally

Investors had been set up for a series of disappointments but got an unexpected lift from two bellwether companies — Intel and United Technologies — helping to spur a broad-based rally that put equities on the path for more gains in coming weeks.

“Until yesterday, earnings were lackluster, not too exciting, even disappointing,” said Nick Kalivas, senior equity index analyst at MF Global. He said the last round of reports “shifted the psychology quite significantly.”

Shares of Intel rose 7.8 percent to $21.41 while United Technology gained 4.3 percent to $85.90.

At the close, the Dow Jones industrial average had gained 186.79 points, or 1.52 percent, to 12,453.54. The Standard & Poor’s 500-stock index rose 17.74 points, or 1.35 percent, to 1,330.36. The Nasdaq, driven by Intel, added 57.54 points, or 2.10 percent, to 2,802.51.

The Nasdaq posted its largest daily percentage gain since Octobe, while the Dow hit its highest close since early June 2008. The S.& P. 500 had its best performance in a month.

European shares also closed sharply higher, with the FTSE 100 in London adding 2.1 percent and the DAX in Frankfurt gaining almost 3 percent.

For a second day, investors in the United States received some positive news about the housing market in the United States.

The National Association of Realtors said that the sale of existing homes in March rose 3.7 percent from February to an annual rate of 5.10 million units. Economists had expected a smaller increase to a five million unit pace.

But the median home price fell 5.9 percent in March from a year earlier to $159,600.

“The underlying trend for existing home sales is improving, but only at a gradual pace,” said Michael Gapen, an economist at Barclays Capital in New York. “Demand should gradually firm as labor market conditions continue to improve.”

On Tuesday, the Commerce Department said that home construction rose 7.2 percent in March from February to a seasonally adjusted 549,000 units a year. Building permits, an indicator of future construction, rose 11.2 percent after hitting a five-decade low in February.

The trend of positive earnings continued after the market’s close on Wednesday and could help spur another rally on Thursday, the last trading day before the Easter holiday. Apple rose 2.7 percent in after-hours trading after a blowout quarter that surged past expectations. Revenue for the technology giant rose 83 percent from the quarter a year ago.

F5 Networks, considered a momentum favorite for investors, climbed 7.3 percent to $99.74 after its second-quarter profit topped expectations and the company forecast third-quarter earnings largely above estimates.

American Express rose 0.8 percent to $47, recovering from earlier losses. While the company’s profit topped expectations, expenses at the credit card company rose.

I.B.M. slipped 0.4 percent to $164.75 after reporting a drop in signings of new business at its global services division during the first quarter. Its profit and revenue, however, came in above analysts’ projections, and it raised its full-year profit view.

In the bond market, Treasury prices fell Wednesday as investors preferred riskier assets. The price of the 10-year Treasury note fell 12/32, while the yield rose to 3.41 percent from 3.36 percent late Tuesday.

 

Google announces Q1 earnings: $8.58 billion gross revenue, $2.3 billion net income

 Google Announces First Quarter 2011 Results

MOUNTAIN VIEW, Calif. – April 14, 2011 – Google Inc. (NASDAQ: GOOG) today announced financial results for the quarter ended March 31, 2011.

"We had a great quarter with 27% year-over-year revenue growth," said Patrick Pichette, CFO of Google. "These results demonstrate the value of search and search ads to our users and customers, as well as the extraordinary potential of areas like display and mobile. It's clear that our past investments have been crucial to our success today--which is why we continue to invest for the long term."

Q1 Financial Summary

Google reported revenues of $8.58 billion for the quarter ended March 31, 2011, an increase of 27% compared to the first quarter of 2010. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the first quarter of 2011, TAC totaled $2.04 billion, or 25% of advertising revenues.

Google reports operating income, operating margin, net income, and earnings per share (EPS) on a GAAP and non-GAAP basis. The non-GAAP measures, as well as free cash flow, an alternative non-GAAP measure of liquidity, are described below and are reconciled to the corresponding GAAP measures in the accompanying financial tables.

GAAP operating income in the first quarter of 2011 was $2.80 billion, or 33% of revenues. This compares to GAAP operating income of $2.49 billion, or 37% of revenues, in the first quarter of 2010. Non-GAAP operating income in the first quarter of 2011 was $3.23 billion, or 38% of revenues. This compares to non-GAAP operating income of $2.78 billion, or 41% of revenues, in the first quarter of 2010.
GAAP net income in the first quarter of 2011 was $2.30 billion, compared to $1.96 billion in the first quarter of 2010. Non-GAAP net income in the first quarter of 2011 was $2.64 billion, compared to $2.18 billion in the first quarter of 2010.
GAAP EPS in the first quarter of 2011 was $7.04 on 326 million diluted shares outstanding, compared to $6.06 in the first quarter of 2010 on 323 million diluted shares outstanding. Non-GAAP EPS in the first quarter of 2011 was $8.08, compared to $6.76 in the first quarter of 2010.
Non-GAAP operating income and non-GAAP operating margin exclude the expenses related to stock-based compensation (SBC). Non-GAAP net income and non-GAAP EPS exclude the expenses related to SBC and the related tax benefits. In the first quarter of 2011, the charge related to SBC was $432 million, compared to $291 million in the first quarter of 2010. The tax benefit related to SBC was $92 million in the first quarter of 2011 and $65 million in the first quarter of 2010.
Q1 Financial Highlights

Revenues – Google reported revenues of $8.58 billion in the first quarter of 2011, representing a 27% increase over first quarter 2010 revenues of $6.77 billion. Google reports its revenues, consistent with GAAP, on a gross basis without deducting TAC.

Google Sites Revenues – Google-owned sites generated revenues of $5.88 billion, or 69% of total revenues, in the first quarter of 2011. This represents a 32% increase over first quarter 2010 revenues of $4.44 billion.

Google Network Revenues – Google's partner sites generated revenues, through AdSense programs, of $2.43 billion, or 28% of total revenues, in the first quarter of 2011. This represents a 19% increase from first quarter 2010 network revenues of $2.04 billion.

International Revenues – Revenues from outside of the United States totaled $4.57 billion, representing 53% of total revenues in the first quarter of 2011, compared to 52% in the fourth quarter of 2010 and 53% in the first quarter of 2010. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the fourth quarter of 2010 through the first quarter of 2011, our revenues in the first quarter of 2011 would have been $19 million lower. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the first quarter of 2010 through the first quarter of 2011, our revenues in the first quarter of 2011 would have been $23 million lower.

Revenues from the United Kingdom totaled $969 million, representing 11% of revenues in the first quarter of 2011, compared to 13% in the first quarter of 2010.
In the first quarter of 2011, we recognized a benefit of $14 million to revenues through our foreign exchange risk management program, compared to a benefit of $10 million in the first quarter of 2010.
Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 18% over the first quarter of 2010 and increased approximately 4% over the fourth quarter of 2010.

Cost-Per-Click – Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 8% over the first quarter of 2010 and decreased approximately 1% over the fourth quarter of 2010.

TAC – Traffic Acquisition Costs, the portion of revenues shared with Google's partners, increased to $2.04 billion in the first quarter of 2011, compared to TAC of $1.71 billion in the first quarter of 2010. TAC as a percentage of advertising revenues was 25% in the first quarter of 2011, compared to 26% in the first quarter of 2010.

The majority of TAC is related to amounts ultimately paid to our AdSense partners, which totaled $1.70 billion in the first quarter of 2011. TAC also includes amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totaled $337 million in the first quarter of 2011.

Other Cost of Revenues – Other cost of revenues, which is comprised primarily of data center operational expenses, amortization of intangible assets, content acquisition costs as well as credit card processing charges, increased to $897 million, or 10% of revenues, in the first quarter of 2011, compared to $741 million, or 11% of revenues, in the first quarter of 2010.

Operating Expenses – Operating expenses, other than cost of revenues, were $2.84 billion in the first quarter of 2011, or 33% of revenues, compared to $1.84 billion in the first quarter of 2010, or 27% of revenues.

SBC – In the first quarter of 2011, the total charge related to SBC was $432 million, compared to $291 million in the first quarter of 2010.

We currently estimate SBC charges for grants to employees prior to April 1, 2011 to be approximately $1.7 billion for 2011. This estimate does not include expenses to be recognized related to employee stock awards that are granted after March 31, 2011 or non-employee stock awards that have been or may be granted.

Operating Income – GAAP operating income in the first quarter of 2011 was $2.80 billion, or 33% of revenues. This compares to GAAP operating income of $2.49 billion, or 37% of revenues, in the first quarter of 2010. Non-GAAP operating income in the first quarter of 2011 was $3.23 billion, or 38% of revenues. This compares to non-GAAP operating income of $2.78 billion, or 41% of revenues, in the first quarter of 2010.

Interest and Other Income, Net – Interest and other income, net increased to $96 million in the first quarter of 2011, compared to $18 million in the first quarter of 2010.

Income Taxes – Our effective tax rate was 21% for the first quarter of 2011.

Net Income – GAAP net income in the first quarter of 2011 was $2.30 billion, compared to $1.96 billion in the first quarter of 2010. Non-GAAP net income in the first quarter of 2011was $2.64 billion, compared to $2.18 billion in the first quarter of 2010. GAAP EPS in the first quarter of 2011 was $7.04 on 326 million diluted shares outstanding, compared to $6.06 in the first quarter of 2010 on 323 million diluted shares outstanding. Non-GAAP EPS in the first quarter of 2011 was $8.08, compared to $6.76 in the first quarter of 2010.

Cash Flow and Capital Expenditures – Net cash provided by operating activities in the first quarter of 2011 totaled $3.17 billion, compared to $2.58 billion in the first quarter of 2010. In the first quarter of 2011, capital expenditures were $890 million, the majority of which was related to IT infrastructure investments, including data centers, servers, and networking equipment. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as net cash provided by operating activities less capital expenditures. In the first quarter of 2011, free cash flow was $2.28 billion.

We expect to continue to make significant capital expenditures.

A reconciliation of free cash flow to net cash provided by operating activities, the GAAP measure of liquidity, is included at the end of this release.

Cash – As of March 31, 2011, cash, cash equivalents, and marketable securities were $36.7 billion.

Headcount – On a worldwide basis, Google employed 26,316 full-time employees as of March 31, 2011, up from 24,400 full-time employees as of December 31, 2010.

WEBCAST AND CONFERENCE CALL INFORMATION

A live audio webcast of Google's first quarter 2011 earnings release call will be available at http://investor.google.com/webcast.html. The call begins today at 1:30 PM (PT) / 4:30 PM (ET). This press release, the financial tables, as well as other supplemental information including the reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, are also available on that site.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements that involve risks and uncertainties. These statements include statements regarding our plans to invest heavily in innovation, our expected stock-based compensation charges, and our plans to make significant capital expenditures. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, unforeseen changes in our hiring patterns and our need to expend capital to accommodate the growth of the business, as well as those risks and uncertainties included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2010, which is on file with the SEC, and is available on our investor relations website at investor.google.com and on the SEC website at www.sec.gov. Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, which we expect to file with the SEC in May 2011. All information provided in this release and in the attachments is as of April 14, 2011, and Google undertakes no duty to update this information.

ABOUT NON-GAAP FINANCIAL MEASURES

To supplement our consolidated financial statements, which statements are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, non-GAAP EPS, and free cash flow. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures" and "Reconciliation from net cash provided by operating activities to free cash flow" included at the end of this release.

We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our "recurring core business operating results," meaning our operating performance excluding not only non-cash charges, such as stock-based compensation, but also discrete cash charges that are infrequent in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to our historical performance and liquidity as well as comparisons to our competitors' operating results. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.

Non-GAAP operating income and operating margin. We define non-GAAP operating income as operating income plus stock-based compensation. Non-GAAP operating margin is defined as non-GAAP operating income divided by revenues. Google considers these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of stock-based compensation so that Google's management and investors can compare Google's recurring core business operating results over multiple periods. Because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use under ASC Topic 718, Google's management believes that providing a non-GAAP financial measure that excludes stock-based compensation allows investors to make meaningful comparisons between Google's recurring core business operating results and those of other companies, as well as providing Google's management with an important tool for financial and operational decision making and for evaluating Google's own recurring core business operating results over different periods of time. There are a number of limitations related to the use of non-GAAP operating income versus operating income calculated in accordance with GAAP. First, non-GAAP operating income excludes some costs, namely, stock-based compensation, that are recurring. Stock-based compensation has been and will continue to be for the foreseeable future a significant recurring expense in Google's business. Second, stock-based compensation is an important part of our employees' compensation and impacts their performance. Third, the components of the costs that we exclude in our calculation of non-GAAP operating income may differ from the components that our peer companies exclude when they report their results of operations. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP operating income and evaluating non-GAAP operating income together with operating income calculated in accordance with GAAP.

Non-GAAP net income and EPS. We define non-GAAP net income as net income plus stock-based compensation less the related tax effects. We define non-GAAP EPS as non-GAAP net income divided by the weighted average outstanding shares, on a fully-diluted basis. We consider these non-GAAP financial measures to be a useful metric for management and investors for the same reasons that Google uses non-GAAP operating income and non-GAAP operating margin. However, in order to provide a complete picture of our recurring core business operating results, we exclude from non-GAAP net income and non-GAAP EPS the tax effects associated with stock-based compensation. Without excluding these tax effects, investors would only see the gross effect that excluding these expenses had on our operating results. The same limitations described above regarding Google's use of non-GAAP operating income and non-GAAP operating margin apply to our use of non-GAAP net income and non-GAAP EPS. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP net income and non-GAAP EPS and evaluating non-GAAP net income and non-GAAP EPS together with net income and EPS calculated in accordance with GAAP.

Free cash flow. We define free cash flow as net cash provided by operating activities minus capital expenditures. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the acquisition of property and equipment, including information technology infrastructure and land and buildings, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet. Analysis of free cash flow also facilitates management's comparisons of our operating results to competitors' operating results. A limitation of using free cash flow versus the GAAP measure of net cash provided by operating activities as a means for evaluating Google is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period because it excludes cash used for capital expenditures during the period. Our management compensates for this limitation by providing information about our capital expenditures on the face of the cash flow statement and under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Quarterly Report on Form 10-Q and Annual Report on Form 10-K. Google has computed free cash flow using the same consistent method from quarter to quarter and year to year.