Procter & Gamble Tops Profit Estimates After Boosting Prices

  • P&G says strong dollar will have larger-than-expected impact
  • Price increases helped mitigate effects of foreign currency

Procter & Gamble Co., coping with the effects of a stronger U.S. dollar, posted earnings that beat analysts’ estimates after it boosted product prices and cut overhead costs.

Profit amounted to $1.04 a share in the second quarter, which ended Dec. 31, the Cincinnati-based company said on Tuesday. Analysts had estimated 98 cents on average, according to data compiled by Bloomberg.

Premium-priced items such as Tide Pods are bolstering sales -- especially in the U.S., which accounts for about one-third of P&G’s business. That helped the company return to organic sales growth last quarter, a sign it can bounce back once the currency headwinds abate. Still, the volume of products P&G sells is falling in most categories.

“The U.S. definitely was the bright spot of the quarter,” said Nik Modi, an analyst at RBC Capital Markets. “I think they’re headed in the right direction.”

Currency effects will lower profit by 37 cents a share, or 10 percent, this year, P&G said. Excluding foreign exchange, profit will be at the lower end of its forecast growth of “mid- to high-single digits.”

The company, run by new Chief Executive Officer David Taylor, has been focused on improving margins and squeezing expenses to adjust to the dollar’s gain. Currency fluctuations eroded the value of its overseas revenue, turning what would have been a 2 percent sales increase into a 9 percent decline last quarter. Total revenue came in at $16.9 billion, matching analysts’ estimates. P&G remains the world’s largest consumer-products company, with brands ranging from Bounty to Gillette.

Stock Climbs

P&G shares rose 2.6 percent to $78.81 at the close in New York, the biggest increase since Dec. 4. The stock had slumped 13 percent last year, dragged down by concerns about the dollar and the company’s struggles to rekindle growth.

In the U.S., P&G held or increased market share in categories representing about 60 percent of the business during the quarter, Chief Financial Officer Jon Moeller said on a conference call.

Moeller attributed the decrease in volume to the company paring back its product portfolios and raising prices.

Currency’s Toll

The effect of the dollar, meanwhile, will reduce this year’s earnings per share by 3 percent to 8 percent from $3.76 last fiscal year, the company said. The currency trend also is hurting rival Kimberly-Clark Corp., which reported disappointing results and a lukewarm forecast on Monday.

P&G’s Taylor took the reins in November from A.G. Lafley, who served two terms as CEO. Lafley cut costs and divested businesses worth billions of dollars in sales, including a chunk of its beauty portfolio and its pet-food and battery units.

Taylor is creating a culture of accountability and transparency, Modi said. Still, the CEO wasn’t on Tuesday’s call with analysts.

“I think the more people that get exposed to him the better off P&G will be,” Modi said.

The challenge now will be introducing more products that consumers are willing to spend more for, he said.
 
“Procter 15 years ago had a significant superiority advantage -- their products just were better, so they were able to price at a premium,” Modi said. “Today the competition has caught up.”

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