P&G Profit Jumps on Strong Sales

Posted 02 August 2006 @ 08:53 pm EET     Print     Reprint     E-Mail     Comments

Chicago (Reuters) - Procter & Gamble Co. posted a 36 percent jump in quarterly profit on Wednesday, boosted by stronger-than-expected sales of Tide laundry detergent and other products, and its shares posted their largest one-day percentage gain in four years. The maker of Crest toothpaste, Pampers diapers and Olay beauty products said that sales rose 8 percent excluding the impact of acquisitions, divestitures and foreign exchange, topping its forecast of 4 percent to 6 percent growth.

Analysts applauded the results.

"P&G is still getting it done," said Deutsche Bank analyst Bill Schmitz, while Merrill Lynch's Christopher Ferrara said the "market should breathe (a) sigh of relief here." Both have "buy" ratings on the shares. Industry watchers were eager to see how P&G responded to high costs and stepped up competition from rivals Colgate-Palmolive Co. and Kimberly-Clark Corp., which are using restructuring savings to promote their brands. Chief Financial Officer Clayt Daley said during a conference call that P&G expects "a continued tough competitive environment" in fiscal 2007. Raw material and energy costs should rise, but the amount should be lower than what's been seen over the past two years, he said. P&G bought Gillette in October, and since comments Daley made in May, the company has labored under worries over inventory cutbacks as a result of a change in Gillette's distribution. But Wednesday's results allayed such fears.

P&G's growth "should put to rest concerns of deceleration and potential disruption caused by the integration of Gillette," Morgan Stanley analyst Bill Pecoriello wrote in a note to clients. He has an "overweight" rating on the shares. "I have no doubt that P&G and Gillette are much stronger together than either company was alone," Chairman and Chief Executive A.G. Lafley said during the call. He also affirmed P&G's financial goals for the deal. Cincinnati-based P&G earned $1.90 billion, or 55 cents a share in the fiscal fourth quarter, up from $1.39 billion, or 52 cents a share, a year earlier. P&G beat its own forecast of 52 to 54 cents a share given in June and analysts' average forecast of 54 cents per share.

CONSERVATIVE STANCE?

Analysts said they were not concerned that P&G's earnings forecasts for the current quarter and year signal that the company may fall short of Wall Street's view. "We believe management is taking a conservative stance at this point," CIBC analyst Joseph Altobello wrote in a note to clients. Shares of P&G were up $2.48, or 4.4 percent, at $58.41 on the New York Stock Exchange, after earlier touching $58.85, their highest level since March. The stock helped to push the Dow Jones industrial average (^DJI - news) up 0.6 percent.
Net sales jumped 25 percent to $17.84 billion, aided by the addition of the Gillette products. Analysts had expected revenue of $17.5 billion. Sales of blades and razors fell 5 percent to $1.16 billion due to issues such as the inventory cutbacks. P&G said that demand for Gillette products remained strong, despite some concerns in the market that Fusion, Gillette's latest razor, had not sold as well as anticipated.

Lafley said sales of Fusion razors were about where P&G expected, while sales of blades were a little bit behind expectations. Daley said that P&G expects to integrate most of Gillette's distribution in developing markets into P&G's system over the next six months. Since P&G's system holds less inventory than Gillette's did, that switch led to inventory cuts. For the total company, volume, which excludes currency and price fluctuations, rose 23 percent in the quarter, and was up 6 percent excluding acquisitions and divestitures. P&G forecast full-year earnings of $2.96 to $3.00 per share, including 12 cents to 18 cents per share of dilution from Gillette. For the first quarter, the company expects to earn 76 cents to 78 cents per share, including dilution of 5 cents to 7 cents per share.

Analysts expected profit of $3.00 per share for the year and 78 cents per share in the quarter. Reuters Estimates said the forecasts include the dilution impact. P&G said sales should rise 9 percent to 11 percent this year, with sales excluding the impact of acquisitions, divestitures and foreign exchange up 4 percent to 6 percent. The company expects sales to rise 23 percent to 27 percent in the first quarter, driven by Gillette. So-called organic sales should rise 5 percent to 7 percent, P&G said.