P&G Net Off but Earnings Rise

Consumer products giant Procter & Gamble Co. said on Tuesday its fiscal first-quarter net income fell 5 percent, but job reductions and other cost-cutting measures helped earnings beat analyst estimates and the stock rallied in a down market.

The maker of Tide laundry detergent, Crest toothpaste, Folgers coffee and a host of other staples also said cost reductions are speeding up. 

The results impressed some investors as proof the company is on the right track with its program to cut employment and focus on its biggest brands. The stock was up almost 4 percent as the broader market fell. 

"I think it will be probably a harbinger of more things to come as they note their cost savings program is really kicking in," said Dan Popowics, analyst at Fifth Third Bank, a P&G shareholder. 

Thee cost savings will help the company in a slowing economy, the company said. 

"Make no mistake, the U.S. economy was in recession before Sept. 11," Chief Executive A.G. Lafley said in conference call with analysts. 

Cincinnati-based P&G posted net income of $1.1 billion, or 79 cents a diluted share, for the three months ended Sept. 30, down from $1.16 billion, or 82 cents a share, a year earlier. 

Core earnings, which exclude restructuring items and — to meet new accounting standards — the amortization of goodwill, rose to 96 cents a share from 92 cents. Analysts surveyed by research firm Thomson Financial/First Call had forecast core profits per share of 93 cents to 95 cents, with an average estimate of 94 cents. 

Sales fell 2 percent to $9.77 billion from $9.97 billion a year before. Unit volume, however, which factors out foreign exchange and price changes, rose 2 percent, excluding divestitures of non-core brands. 

Lafley said the company has already taken actions to help it perform well in a recession, including cutting overhead costs, conserving cash and adjusting prices when needed, while emphasizing its strong brands. 

He also noted that the consumer products sector in general, and P&G in particular, historically perform relatively well in a recession, as people still need their everyday products. 

"Our goal is to build market share during recession so we're in a stronger position when the economy starts growing again," Lafley said. 

Analysts said Lafley had to lay out a recession strategy to help allay investor concerns. 

"I think it's a pretty big concern of folks," said Ann Gillin Lefever, consumer products analyst at Lehman Brothers. "I think there's a worry about what the consumer's going to do here broadly. So I think he had to address it." 

P&G shares closed up $2.90 at $74.20 Tuesday in New York Stock Exchange trading. Since the Sept. 11 attacks on the United States, P&G stock, a Dow Jones industrial average component, has fallen about 1 percent, while that blue chip index has declined 4 percent.

"I think it's very encouraging that they continue to meet the targets they put out there. Especially encouraging is the higher unit volumes," Popowics said. "Looking back over the last two years, this is a step in the right direction." 

Foreign exchange rates cut into sales growth, as did lower fabric and home care sales. Health care was the best performing segment, with sales up 21 percent excluding foreign exchange, due to strong results in Iams pet food and new Crest oral care products. 

P&G, now in the midst of a cost-reduction program that includes thousands of job cuts, has been lowering prices in the past year and raising promotional spending on selected products in an effort to hold or boost market share. 

For the second quarter, P&G said its sales, excluding the impact of foreign-exchange rates, and its sales volume should both be up percentage-wise in the low single digits from a year ago. 

The company expects earnings per share to increase in the low to mid-single digits on a percentage basis, despite a significantly lower contribution from non-operating profits in the current year. 

For the year, P&G said it was comfortable with earnings per share estimates of $3.40 to $3.50, despite a total of 4 cents dilution from the planned sale of Jif peanut butter and Crisco shortening to Orrville, Ohio, jelly maker J.M. Smucker Co. and the planned acquisition of Clairol hair care products from New York pharmaceutical firm Bristol-Myers Squibb Co. Analysts' mean estimate has been $3.40 a share.