UPDATE: Procter & Gamble 3Q EPS Beats Estimates
April 30 2009 - 12:59PM
Dow Jones News
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