Procter & Gamble (NYSE:PG) showed once again this week that it is a true core investment with a solid first-quarter earnings report.

According to the Fool by Numbers breakdown, net sales increased 27% to $18.8 billion, operating income went up 33% to just in excess of $4 billion, net earnings on a dollar basis also advanced by a third to $2.7 billion, and diluted earnings per share increased a more modest 3% to $0.79.

The growth number for the per-share statistic was low because the impact of the Gillette acquisition has caused dilution in the share count. But don't get too bothered over that. Believe me, the Gillette purchase makes for a winning situation for shareholders. Combining two complementary blue-chip entities is a no-brainer in this case. Robert Allen made his case in a previous Fool article, and I agree with his sentiments.

Excluding the dilution, P&G says earnings grew between 9% and 10%. The thing you must remember about Gillette is that its product portfolio, coupled with P&G's marketing and distributional muscle, will make for shareholder value. It gives P&G additional exposure to useful consumer categories such as batteries and blades, and it affords access to well-established brands -- Duracell and Gillette shaving products are known around the world and are widely trusted (although, I must admit, I currently use the Quattro razor from Schick). Going forward, the merger will reveal all kinds of redundancies that can be eliminated, as well as other opportunities for reducing operational costs.

P&G is known for its cash generation, and this quarter proves it. Cash derived from operating activities rose 36%, and free cash flow increased by more than 34%. P&G wants its free cash to represent at least 90% of its net earnings number, if not higher, and although the company didn't reach that level this time, I'm not to going to raise a red flag over it -- after all, 88% in free cash flow productivity is fine enough, especially considering the double-digit growth rates.

An increase in accounts payable helped to minimize the effects of increases in inventory levels and accounts receivables; the company indicated that the increases in the latter two areas of the working capital schematic were justified by growth in its operations. And here's some more good news -- gross, operating, and net margins expanded, with gross margins rising 1.2%, from 51.61% in last year's quarter to 52.81% in this year's quarter.

There's no doubt about it -- P&G is one of the best companies out there, and it is still prospering. Organic sales growth hit 6%, which is what the company is looking for on a long-term basis. The management of its huge brand portfolio continues to drive shareholder value. Pringles, Duracell batteries, Crest, and so on -- this is the stuff we all know and buy. That'll never stop, even if generic items will always be a thorn in the side of companies like P&G, since they can compete with lower prices and tend to commoditize a particular category. P&G must always therefore invest in smart advertising to combat such a threat and keep the brand equity of its product lines intact. As a good example, think of the challenge Duracell faces in persuading consumers to load up on its batteries, as opposed to the inexpensive kind.

Plus, P&G knows how to stand up to competition from Clorox (NYSE:CLX), Colgate-Palmolive (NYSE:CL), Energizer (NYSE:ENR), and Avon (NYSE:AVP). The key here is to differentiate its product lines from these other established brands by offering unique elements, whether it be some new toothpaste technology or a novel formulation of detergent. Continued product innovation is key to P&G's growth, and I think the statistics presented here prove that the company's methods are working.

P&G upped its guidance for the full fiscal year. Whereas back in August it expected to deliver earnings per share (including the effect of the Gillette merger) somewhere in a range between $2.96 and $3.00, it now thinks it can do somewhere between $2.97 and $3.02. It believes that inflationary costs will be tamer this time around.

Shareholders should be happy that they have P&G in their portfolios. The company is doing great business and should do so well into the future, generating excess cash and increasing dividends. The Gillette acquisition will prove itself to be an intelligent move. Just keep reinvesting those dividends, and watch for any pullbacks that might allow an entry point with a higher dividend yield.

P&G rival Colgate-Palmolive is a Motley Fool Inside Value recommendation. See what other top-shelf companies are trading at bargain-bin prices by checking out Inside Value. It's free for the first 30 days -- and what value hound can resist that?

Fool contributor Steven Mallas owns none of the companies mentioned. As of this writing, he was ranked 869 out of more than 12,000 investors in the Motley Fool CAPS service. Don't know what CAPS is? Check it out! The Fool has a disclosure policy.