P&G Cuts Full-Year Earnings Forecast

P&G Cuts Full-Year Profit Forecast
Procter & Gamble Co.'s Pampers diapers sit on display at a store in Falls Church, Virginia. Photographer: Andrew Harrer/Bloomberg

Procter & Gamble Co., the world’s largest consumer-products company, fell the most in more than two years after reducing its earnings forecast, hurt by regulations in Venezuela and slowing sales shipments in some developed markets.

P&G dropped 3.6 percent to $64.48 yesterday at the close in New York, the biggest decline since August 2009. The shares have fallen 3.3 percent this year.

The company, based in Cincinnati, cut its full-year profit forecast excluding some items to as much as $3.88 a share from a previous forecast of a maximum of $4.03. Analysts projected $3.99, the average of 22 estimates compiled by Bloomberg.

P&G executives on a conference call yesterday said that new regulations in Venezuela, where sales are more than $1 billion, forced price cuts as steep as 25 percent. U.S. consumer companies including P&G, Colgate-Palmolive Co. and Johnson & Johnson have had to slash prices on products such as toothpaste, toilet paper and bleach after President Hugo Chavez installed price caps to slow inflation. The revenue from Venezuela is about 1.2 percent of P&G’s $82.6 billion in sales last year.

Chief Financial Officer Jon Moeller said sales shipments in developed markets declined slightly in the fiscal third quarter, “reflecting weak economic conditions.” North American sales volume was unchanged in the last three months while Europe was down about half a percentage point from a year earlier.

Reducing Prices

P&G lost “significant share” in some categories after the company raised prices and competitors didn’t, Moeller said. The company is now reducing prices in six categories, including North American oral care, razor blades and dish care, as well as laundry detergent in the U.S., U.K. and Mexico.

Household-products makers including P&G have raised prices in the past year to counter higher expenses for raw materials. Last week, Kimberly-Clark Corp., the maker of Huggies diapers and Kleenex tissues, reported a 34 percent increase in quarterly profit that was helped by price increases.

P&G’s earnings in the fiscal fourth quarter will be “negatively affected” by higher commodity costs and the company’s tax rate will be “significantly” higher than a year earlier, the company said yesterday in a statement.

‘Not Our Fault’

Net income in the fiscal third quarter fell 16 percent to $2.41 billion, or 82 cents a share, from $2.87 billion, or 96 cents, a year earlier, the company said. Excluding some items, profit was 94 cents a share. Analysts projected 92 cents, the average of 20 estimates compiled by Bloomberg.

“P&G is not delivering,” Wendy Nicholson, an analyst at Citigroup Inc., said on the conference call. “There’s so many excuses: not our fault, competition didn’t follow the pricing; not our fault, Venezuela changed; not our fault, the developed consumer isn’t robust,” she said.

“It is my fault,” Chief Executive Officer Robert McDonald said on the call. “I do take responsibility. We will get the right leaders in place to deliver and will put the right programs in place to deliver.”

Other analysts questioned P&G’s strategy and restructuring plan on the call.

“You have major issues to maintain your share without rolling back the pricing or aggressively using promotion to push out material margin improvement,” said Tim Conder, an analyst at Wells Fargo Securities. “It seems one of execution,” Conder said, who has an outperform rating on the shares, meaning he expects the stock’s return to exceed the average among its peers.

‘Current Plan’

“How long do you expect investors to wait?,” said Ali Dibadj, an analyst at Sanford C. Bernstein & Co., who cited the company’s underperforming beauty-care business and has an outperform rating on the stock. “How long does your current plan have to work? How much patience does the board have?”

Revenue at P&G, the maker of Pampers diapers and Gillette razors, rose 1.5 percent to $20.19 billion in the third quarter, according to the statement.

In February, P&G announced it was selling Pringles to Kellogg Co. for $2.7 billion in cash, terminating a previous plan to sell the potato chip business to Diamond Foods Inc.

Newell Rubbermaid Inc., maker of Sharpie pens and Aprica strollers, also reported results yesterday. First-quarter profit excluding some items totaled 33 cents a share, exceeding the 31-cent average of analysts’ estimates compiled by Bloomberg. Net income rose 4.8 percent to $79.3 million, or 27 cents a share, from $75.7 million, or 25 cents, a year earlier, helped by sales in Latin America and Asia as well as its professional and baby care units.

In baby care, “the good growth in this business is actually coming from the developed world right now,” Chief Executive Officer Michael Polk said yesterday in a telephone interview, citing its Aprica brand in Japan and stronger Graco sales in the U.S.

Newell, based in Atlanta, rose 3.5 percent to $18.58 at the close in New York. The shares have gained 15 percent this year.

Download: Earnings