Procter & Gamble 4Q Net Up 33% On Product-Price Hikes

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August 05, 2008: 07:56 AM EST

DOW JONES NEWSWIRES

Procter & Gamble Co. (PG) posted a 33% jump in fiscal fourth-quarter net income as the consumer-products giant’s price hikes on several products and cost-savings measures offset rising commodity prices.

But the maker of Pampers diapers and Olay beauty products sees commodity costs in the new fiscal year being $3 billion higher than a year earlier, hurting profit margins.

P&G, whose proposed sale of the Folgers coffee business to J.M. Smucker Co. ( SJM) has been cleared by U.S. antitrust authorities, reported net income of $ 3.02 billion, or 92 cents a share, for the quarter ended June 30, compared with $2.27 billion, or 67 cents a share, a year earlier. The latest results included a 12-cent tax gain.

Net sales rose 10% to $21.27 billion. The weaker dollar added 6 percentage points to sales, while price hikes added 3 points. Organic sales – which exclude acquisitions, divestitures and foreign-exchange impacts – rose 5%.

P&G in April had forecast earnings excluding items of 76 cents to 78 cents and organic sales growth of 4% to 6%. Wall Street’s latest estimates were for earnings of 78 cents a share on revenue of $21.05 billion.

Gross margin fell to 49.2% from 50.8% as higher commodity and energy costs more than offset increased volume and prices.

Net sales in the beauty segment, a key driver of sales growth, climbed 11%. Investors were closely watching the category’s performance, after a modest slowdown in the preceding quarter.

P&G, has been moving to shed slower-growing products so in can focus on brands with stronger prospects. In June, it agreed to sell its Folgers coffee business to Smucker for about $2.95 billion in stock. The acquisition was a departure from P&G’s January-announced plan to separate Folgers into a standalone business, made necessary by Folgers’ inability to keep pace with P&G’s annual sales-gain target of 4% to 6%.

Consumer-products firms have been a focus of investor concern of late, not just because of the weakening economy but also a result of higher commodity costs affecting a raft of industries. P&G shares have fallen mostly in tandem with the economy-spooked stock market, unlike during the 2001 recession and post-bubble period when the stock made hefty gains as the market was tumbling.

P&G has offset higher commodity expenses by increasing its own prices and implementing cost-savings programs. In May, the company disclosed another round of price increases on a wide range of household staples, from toothpaste to dish soap, despite slowing consumer spending and increasing unemployment.

Looking ahead, raised the high end of its fiscal-year earnings target by 2 cents and now sees earnings excluding items of $3.80 to $3.87 a share, with organic sales up 4% to 6% and total revenue rising 5% to 7%. Analysts were expecting earnings of $3.85 on 6% revenue growth to $88.4 billion.

Fiscal first-quarter earnings are pegged at 98 cents to $1 a share with organic sales up 4% to 6% and total revenue increasing 7% to 10%. Analysts were expecting a $1 profit and 7% revenue growth to $21.69 billion.

In recent pre-market trading, P&G shares were at $65, down 1.2% from Monday’s close.

August 5, 2008