P&G quarterly profit drops, but stock holds steady

The consumer products maker says higher materials costs hurt its margin in the quarter.

By Kim Peterson Oct 27, 2010 11:08AM
Procter & Gamble's first-quarter profit fell nearly 7% as the cost for its raw materials climbed, yet the maker of Pampers, Crest and Tide was still able to beat analyst expectations.

Sales came in slightly under Wall Street estimates. Still, the stock proved resilient enough to gain slightly in morning trading.

The big story for the quarter was higher commodity costs -- and whether the company will have to raise prices in a struggling economy to offset those new expenses. Chief executive Bob McDonald said P&G will try to cut costs instead of increase prices, according to Dow Jones.

But if price hikes are necessary, he said, the company will deal with those by launching innovative new products.

"The pricing is not becoming more benign in the industry," a Sanford Bernstein analyst told Reuters. "Competition is still high."

P&G's quarterly profit dropped to $3.08 billion, or $1.02 a share, compared with $3.31 billion, or $1.06 a share, from the year-ago period. That beat the $1 a share analysts were looking for.

The profit picture declined in part because the quarter didn't include the global pharmaceuticals business that P&G sold last October.

Revenue gained 2% to $20.12 billion, slightly less than the $20.24 billion analysts expected. The volume of products shipped grew by 8%.

Kimberly-Clark (KMB), a rival of P&G, disappointed analysts with its quarterly earnings Tuesday, citing sluggish sales despite lower prices, Reuters reported.

McDonald described consumer demand as "dampened" in the U.S. That's why the company is hesitant to raise prices even as its cost of materials is increasing.

For the current quarter, investors will focus on whether the company can cut back enough to offset those commodity costs.

P&G was optimistic for the quarter, forecasting a profit of $1.05 to $1.11 a share and an increase in net sales growth of 2% to 4%. Organic sales, which exclude acquisitions and foreign currency effects, should be up by 3% to 5%.

Analysts are expecting a $1.11 per-share profit in the quarter, according to Reuters, and a 1% increase in revenue to $21.27 billion.

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