2nd UPDATE: Procter & Gamble 4Q Profit Falls 18%
August 05 2009 - 11:41AM
Dow Jones News
Procter & Gamble Co.'s (PG) fiscal fourth-quarter profit
exceeded expectations, but the consumer products giant continued to
see sales declines across most of its businesses as consumers cut
back purchases of its higher-priced products.
P&G projected further sales declines, saying sales excluding
acquisitions and divestitures would be flat to down 3% in the first
quarter. On a conference call, company executives said results
would improve sequentially after the first quarter.
In the latest fourth quarter, P&G was hurt by weaker sales
in its beauty and grooming businesses. Sales of the higher-end,
more discretionary line of Braun shavers fell sharply. But some of
P&G's everyday brands also continued to see declines as
consumers traded down to cheaper brands and private label goods in
grocery stores. Shipments of its key Tide brand, which is priced
much higher than competing detergents, fell during the fiscal year.
P&G shares were recently down 3.5% to $53.55.
In recent years, Procter & Gamble has put more focus on
higher-priced products, seeking to drive growth by getting
consumers to trade up to pricier products and brands. That strategy
has hurt the company during the recession as consumers cut
discretionary spending in areas like beauty and traded down to
cheaper pantry staples.
Rival Colgate Palmolive Co. (CL), for instance, is perceived as
having held up better during the recession because its portfolio is
focused on low-price staples like toothpaste and soap. Colgate
shares are up 4.7% for the year, compared with a 13% drop for
P&G.
P&G's results reflect the dilemma that consumer product
companies must now face after years of pushing consumers toward
higher margin offerings. Although there have been some signs of an
improving outlook for the economy, many consumer industry experts
worry that U.S. consumers will stay frugal even after the economy
bounces back.
The fourth quarter was the first time the company reported
earnings under newly appointed Chief Executive Robert McDonald.
On a conference call on Wednesday, McDonald said the company
will grow long term by pushing more of its products in areas where
it is under-represented. P&G will aim to sell more beauty
products in drug stores. It is also aiming to increase its overall
presence online. The company will put more focus on lower priced
products, but will continue to grow its higher margin businesses
through internal growth and acquisitions, he said.
McDonald took over from A.G. Lafley, who engineered the giant
Gillette acquisition and drove the push toward faster growing
higher margin businesses. But McDonald also inherits a hosts of
challenges as consumer trends shift and as the economic outlook
stays uncertain.
"Congratulations are premature," McDonald said to one analyst,
who wished him luck on the new position.
Fourth-quarter results were of "lackluster quality," Goldman
Sachs analyst Andrew Sawyer wrote in a research brief to investors.
P&G is diversified globally, but emerging markets have seen
some slowdown as well and the company's international presence has
meant that it has been pressured by fluctuations in foreign
currencies.
For the first quarter, P&G projected results slightly more
downbeat than analysts - earnings of 95 cents a share to $1 and a
net sales drop of 7% to 10%. Analysts are looking for earnings of
$1 a share and a sales decline of 7% to $20.57 billion, according
to analysts surveyed by Thomson Reuters. In the fourth quarter,
earnings fell 18% on last year's Folger's sale and the company saw
volumes drop as it raised prices. For the quarter ended June 30,
the maker of brands such as Tide and Pampers reported a profit of
$2.47 billion, or 80 cents a share, down from $3.02 billion, or 92
cents a share, a year earlier. Excluding items such as divestitures
and tax adjustments, earnings rose to 83 cents a share from 78
cents.
Net sales decreased 11% to $18.7 billion on the stronger U.S.
dollar, while organic sales - which exclude currency changes,
acquisitions and divestitures - fell 1%. Analysts polled by Thomson
Reuters most recently were looking for earnings of 79 cents on
sales of $19.32 billion.
-By Anjali Cordeiro, Dow Jones Newswires; 212-416-2200;
anjali.cordeiro@dowjones.com
(Tess Stynes contributed to this article)