Gillette Profit Up, to Raise Battery Prices

Gillette Co. (G), the maker of razors and Duracell (search) batteries, on Thursday reported its quarterly profit rose by 19 percent, benefiting from extra shipping days, and said it would raise North American battery prices in August.

Both earnings and sales in the first quarter topped Wall Street estimates.

Gillette, which agreed in January to be acquired by Procter & Gamble Co. (PG), said profit rose to $449 million, or 45 cents per share, from $376 million, or 37 cents per share, a year earlier. Net sales jumped 17 percent to $2.61 billion.

Analysts, on average, expected Boston-based Gillette to earn 43 cents per share on revenue of $2.44 billion.

"Gillette reported another quarter well ahead of analyst expectations on the top and bottom line, even after charges to clean up its balance sheet in advance of its acquisition by P&G," said Deutsche Bank analyst William Schmitz, who has a "hold" rating on Gillette and a "buy" on Procter & Gamble.

Gillette (search) did not give new details about its planned acquisition by Procter & Gamble (search), but echoed earlier comments that the deal should give it better access to emerging markets, such as China, where P&G has greater reach.

"We like Gillette on a stand-alone basis and we like it more combined with Procter," said Banc of America Securities analyst April Scee, who has "buy" ratings on both stocks. "We continue to believe that the market is too strenuously questioning the timing and rationale for the transaction, and would be buyers on weakness with the caveat that we see no definitive near-term catalyst.

Shares of Gillette slipped 19 cents to $52.66 in morning trading, while shares of P&G dropped 10 cents to $55.04.

P&G will swap 0.975 shares of its stock for each Gillette share in the deal, to be voted on by investors in mid-June.

Arbitragers and institutional investors essentially now trade Gillette shares based on what P&G is going to pay, and not on the company's fundamentals.

"While the result is a slight positive, we believe it will not be enough to drive PG's stock up," JP Morgan analyst John Faucher, who has an "overweight" rating on Gillette and a "neutral" rating on P&G, said in a research note.

Gillette, which reported notable growth in Russia, Turkey and Eastern Europe, got a boost from five additional days in the first quarter of 2005 versus 2004.

Gillette did not quantify how the extra days helped in the quarter, but Faucher estimated they added 8 percent in sales.

Favorable foreign exchange added 3 percentage points to the net sales gain, the company said.

Gillette said it would raise prices on Duracell alkaline batteries by 6 percent to 7 percent in North America, effective Aug. 15, due to higher raw material costs. The move follows an average 6.8 price hike announced by rival Energizer Holdings Inc. (ENR) last week, which goes into effect Aug. 1.

"We believe this should help boost the category in general, which has suffered from high levels of promotion in recent quarters," Scee said in a note.

Consumer products companies have recently announced price increases on items ranging from coffee to diapers to help offset rising costs. They have also raised marketing spending to ensure that consumers choose their products over private label brands and other less expensive competitors.