3rd UPDATE: P&G 4Q Sales Up 5%, Lower Prices A Pressure
August 03 2010 - 1:16PM
Dow Jones News
A stream of new products and hefty promotions propelled Procter
& Gamble Co.'s (PG) fiscal fourth-quarter sales higher, but its
efforts to lure consumers with lower prices nicked earnings.
The Cincinnati giant's sales missed its own forecast, making it
the latest consumer company to feel pressure from shoppers cutting
back on daily purchases and reaching for cheaper offerings.
P&G, like other big brands, has promoted more to win over
consumers, but its efforts to regain the market share it ceded in
the recession have had mixed results.
The price promotions and heavy marketing investment helped lift
volumes sharply, by 8% and overall sales grew 4.7% to $18.93
billion. But price adjustments lowered sales by one percentage
point.
P&G shares were recently down 3.6% to $59.78 as the company
gave a weaker than expected profit forecast for the first
quarter.
Results from the maker of Tide, Pampers and other familiar
brands reflect the tough task that household goods companies face
as the picture on U.S. consumer spending remains mixed. Chief
Executive Bob McDonald said many consumers in the U.S. are still
spending well, and the company's new higher priced line of Gillette
Fusion ProGlide razors did well. But consumers who are unemployed
or in difficult financial positions are still trading down,
McDonald said.
P&G and other large consumer companies aren't expecting a
major ramp-up in consumer spending in developed markets soon.
"Trading down is an impact. I frankly expect that to continue,"
McDonald said. "The economic recovery in the U.S. will be
uneven."
P&G said new offerings like the ProGlide razors helped it
grow its global market share in the quarter and are helping it
fight store brands and other cheaper competitors. In the U.S. and
Western Europe the company said it has seen private label market
shares decline.
The company's profit in the quarter dropped 12%, reflecting
earnings from discontinued operations in the prior-year period as
well as the heavy investments in marketing and new products.
Developing markets continued to do well, and P&G said it saw
strong shipments in Asia.
For the quarter ended June 30, P&G reported a profit of
$2.19 billion, or 71 cents a share, compared with $2.47 billion, or
80 cents a share, a year earlier. Revenue rose 4.7% to $18.93
billion, below the company's 6% to 7% growth forecast. The U.S.
dollar strengthened more than expected in the quarter, contributing
to the miss in sales projections.
Other consumer companies have reported similarly mixed results.
On Tuesday, bleach maker Clorox Co. (CLX) said its fiscal
fourth-quarter profit climbed 0.6% as it saw little revenue growth
and lower margins. Last week, Colgate-Palmolive (CL) reported
higher earnings but weaker than expected sales.
To keep drawing consumers, P&G signaled it would keep
investing in new products and marketing. Its earnings outlook for
the coming first quarter was below Wall Street's estimates.
The company projected first-quarter earnings of 97 cents to
$1.01 a share, compared with the average analyst forecast of $1.04.
P&G said its first-quarter outlook reflected the company's
plans to continue "strong investment levels in innovation and
marketing support."
Over the past year, the company has increased its advertising,
cut prices on brands like its Cheer detergent and made a deeper
push with more affordable offerings in developing markets. McDonald
said the company is now "basically where we want to be in terms of
prices." But P&G may still make some "discreet price
corrections" on brands like Downy in North America, he said.
For coming fiscal year, which ends June 2011, the company
projected per-share earnings of $3.91 to $4.01, bracketing
analysts' forecast of $3.98. The company said the benefits of new
product launches as well as cost cuts would help results next
year.
-By Anjali Cordeiro, Dow Jones Newswires; 212-416-2200;
anjali.cordeiro@dowjones.com
(Kevin Kingsbury contributed to this article.)
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