Consumer goods giant Procter & Gamble Co. (PG) reported better-than-expected, fiscal third-quarter per share earnings, but saw sales of high-end fragrances and beauty brands slump sharply as consumers around the world continued to slash discretionary spending.

The Cincinnati company's organic sales - a closely watched metric that excludes currency changes, acquisitions and divestitures - rose just 1%. Profit fell 4% as the Tide and Pampers maker was hurt by charges for the divestiture of its Folgers coffee business. P&G blamed the slower sales growth on retailer inventory cuts in developing markets, foreign exchange fluctuations and declines in discretionary categories like hair salon products and its Braun line of shavers and epilators.

By contrast, its smaller rival Colgate-Palmolive (CL) - which is focused on selling less discretionary items like toothpaste and soap - saw organic sales grow 8%. Colgate said it hasn't been hurt by consumers trading down or seen a significant pressure from cheaper private label competitors. Chief Executive Ian Cook on a conference call said the company hasn't been significantly hurt by retailer "destocking."

To fatten its profits margins, Procter & Gamble has in recent years moved some of its focus to higher-end products - such as fragrances - making parts of its business more vulnerable to cutbacks in discretionary spending. Last year, the maker of Tide detergent, Crest toothpaste, CoverGirl cosmetics and Olay creams made a deeper push into the high-end beauty segment with the purchase of luxury hair-care company Frederic Fekkai. The company also sells premium fragrances through tie ups with brands such as Hugo Boss.

Despite a 9% drop in beauty sales in the third quarter, P&G CEO A.G. Lafley said the company continues to like the business, calling it the single largest contributor to profit growth over the last decade. "You're going to have to deal with the downs and the ups," he said of the faster growth beauty and emerging markets businesses. P&G has plans to restructure the beauty and grooming business to make it more efficient.

Lafley hinted at other changes to the company's categories. On a conference call, he said P&G will continue to divest underperforming businesses and possibly exit categories that aren't a good fit. The current environment could also be a good time for the company to make acquisitions, he said, but didn't provide specifics. Lafley said there has been "significant interest" in the company's pharmaceutical business, which P&G has considered divesting, but he added that the company is still weighing a variety of options for those operations.

"I'm hopeful that there will some assets that are available down the road and at the same time I think that we will continue to divest," he said.

P&G cut the high end of its already-lowered fiscal-year outlook and projects earnings of $4.20 to $4.25 a share, compared with a January forecast of $4.20 to $4.35.

For the period ended March 31, P&G reported net income of $2.61 billion, down from $2.71 billion a year earlier. But per-share earnings rose to 84 cents from 82 cents as shares outstanding fell 6%. "The quality of results looks worse than expected and we expect questions about the sales outlook to remain at the forefront of investor thinking," said Goldman Sachs analyst Andrew Sawyer in a research brief.

Revenue decreased 8% to $18.42 billion on the stronger dollar. Analysts polled by Thomson Financial had expected earnings of 80 cents a share on revenue of $18.9 billion.

Colgate's first-quarter net income rose 8.9% on margin increases and higher prices. The toothpaste maker reported net income of $507.9 million, or 97 cents a share, up from $466.5 million, or 86 cents a share, a year earlier. "The company continues to demonstrate that it is able to navigate the tough macro environment better than most peers," said Sawyer about Colgate.

Colgate earnings exceeded earnings expectations, but its revenue was slightly below estimates due to the effect of fluctuating foreign currencies.

Revenue decreased 5.7% to $3.5 billion as the company was hurt by volatility in global currencies. Analysts polled by Thomson Reuters most recently were looking for earnings of 96 cents on revenue of $3.6 billion. P&G shares were recently down 2% to $49.48 and Colgate lost 1% to $59.10.

-By Anjali Cordeiro, Dow Jones Newswires; 201-938-2473; tess.stynes@dowjones.com