P&G Profit Tops Estimates as Emerging Markets Help Sales

Procter & Gamble Co. (PG), the world’s largest consumer-goods maker, posted second-quarter profit that topped analysts’ estimates as sales of products such as Pampers diapers rose in emerging markets.

Net income fell 16 percent to $3.43 billion, or $1.18 a share, from $4.06 billion, or $1.39, a year earlier, Cincinnati-based P&G said today in a statement. Excluding some items, profit was $1.21 a share, exceeding the $1.20 average of 20 analysts’ estimates compiled by Bloomberg.

Chief Executive Officer A.G. Lafley has said developing markets with climbing household incomes will be “significant” drivers of growth. Sales in such countries, which P&G didn’t name, rose 8 percent in the quarter, excluding the effects of acquisitions, divestitures and foreign-currency exchange-rate fluctuations. Those gains have helped P&G overcome weakness in the U.S., where it is trying to recapture market share in key categories such as detergents.

“Some of those investments are paying off for them in emerging markets,” Jack Russo, an analyst at Edward Jones & Co. in St. Louis, said today in a telephone interview. He recommends buying the shares.

Sales rose 0.5 percent to about $22.3 billion. Analysts estimated $22.3 billion, on average. Growth in developing regions helped boost sales in the fabric and home care business as well as the baby, feminine and family care unit, P&G said today.

Photographer: Lam Yik Fei/Bloomberg

Bottles of Procter & Gamble Co. Rejoice hair care products are displayed for sale at a ParknShop Superstore supermarket in Hong Kong. Close

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Photographer: Lam Yik Fei/Bloomberg

Bottles of Procter & Gamble Co. Rejoice hair care products are displayed for sale at a ParknShop Superstore supermarket in Hong Kong.

Forecast Maintained

P&G reiterated its annual forecast for a 5 percent to 7 percent increase in adjusted earnings and a 3 percent to 4 percent organic sales gain.

The shares rose 1.2 percent to $79.18 at the close in New York. P&G advanced 20 percent last year, compared with a 30 percent increase for the Standard & Poor’s 500 Index.

Currency fluctuations reduced earnings in the quarter by 11 cents a share, P&G said today. Currencies also reduced net sales by 3 percentage points, while the mix of products sold reduced sales 1 percent.

P&G said it expects currency-fluctuation impacts to ease this year. Yet markets are experiencing the worst selloff in emerging-market currencies in five years, driven by political and financial instability and the fallout from the Federal Reserve’s tapering of monetary stimulus.

‘Under Pressure’

“You’re finding that there are more and more emerging market currencies that are under pressure,” Ali Dibadj, an analyst at Sanford C. Bernstein & Co. in New York, said today in a telephone interview. “If there are many countries that go through this, many currencies that go through this, you will see numbers come down for a lot of these companies and the expectations proving to be too optimistic.”

While P&G has a smaller percentage of sales from emerging markets than some competitors, “the impact on the bottom line could be bigger than others” because less of its production is done locally, Dibadj said. Last year, 39 percent of P&G’s sales came from developing markets compared with Colgate-Palmolive Co., which saw about half of its sales come from emerging markets.

China, Russia, and Mexico have been particularly important for P&G’s growth, said Dibadj, who has an outperform rating on the shares, the equivalent of a buy.

Lafley Return

Globally, lower-margin businesses such as fabric care have grown faster than more profitable categories such as beauty and grooming, John Faucher, an analyst at JPMorgan Chase & Co. in New York, said in a note before the results were released. He has an overweight rating on the shares, the equivalent of a buy. Net sales in beauty fell 2 percent and increased 1 percent in fabric care. Health care sales rose 4 percent.

Lafley, who first led the company from 2000 to 2009, replaced Bob McDonald last year after P&G lost market share in some important categories and trailed competitors in sales growth. In addition to continuing a cost-saving program begun under McDonald, he has said he’ll work to boost innovation and productivity.

Investors are expecting more, said Matt McCormick, who helps manage about $10 billion, including P&G shares, at Bahl & Gaynor Inc. in Cincinnati. Many think Lafley should sell the Iams pet food and Duracell battery units, he said.

Kimberly-Clark Results

“There’s an appetite for it,” McCormick said in a telephone interview before the results were released. “Interest rates are low, and if you’re going to do it, do it soon.”

Kimberly-Clark Corp. (KMB), the maker of Kleenex tissue and Huggies diapers, today said fourth-quarter net income more than doubled to $539 million, or $1.40 a share, from $267 million, or 68 cents a share, a year ago. Excluding some items, profit was $1.44 a share, topping analysts’ $1.39 average estimate.

Sales were little changed at $5.3 billion, beating analysts’ $5.27 billion projection.

Kimberly-Clark forecast adjusted profit per share of $6 to $6.20 for the current year. Analysts estimated $6.11 on average.

The shares advanced 4 percent to $109.68.

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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