Gillette Profit Rises on Thriving Sales of Higher-Priced Products

CHICAGO – Gillette Co. (G) Thursday said profit rose 26 percent as its battery-powered M3Power men's razor, Venus Divine women's razor and other higher-priced new products lifted sales.

But shares fell on disappointment that the world's largest maker of blades and batteries, whose profit beat analysts' consensus estimates by a penny a share, did not exceed Wall Street forecasts by a wider margin, analysts said.

"We think the market had been expecting Gillette to beat consensus estimates by a wider margin this quarter," Lauren Lieberman, analyst at Credit Suisse First Boston, said in a research note.

The company reported a 10 percent rise in its blade and razor sales, even as rival Energizer Holdings Inc. (search) tried to counter Gillette product launches with giveaways of its Schick Quattro (search) razor and promotions for its Intuition women's razor.

The M3Power (search) launch "really muted the Quattro," said William Chappell, analyst at SunTrust Robinson Humphrey. He rates Gillette shares "buy."

Boston-based Gillette, which also makes Duracell batteries and Oral-B toothbrushes, posted second-quarter profit of $426 million, or 42 cents a share, compared with $338 million, or 33 cents a share, a year ago.

Analysts on average forecast earnings of 41 cents a share, according to Reuters Estimates.

Sales rose 8 percent to $2.44 billion. Analysts on average forecast $2.50 billion. The weaker dollar, which makes sales in other currencies more valuable for U.S.-based companies, added 2 percentage points to the sales increase.

The company said sales growth moderated in several Western European markets as consumer spending slowed across the consumer staples category.

Though sales were a bit below analyst expectations, margins were higher than expected, helped by a program that has cut costs in purchasing, as well higher use of its factories, which lowers the cost of each item made.

"It's particularly impressive in light of the commodity costs that all consumer product companies are facing," Chappell said. In recent months, consumer products makers have been pressured by rising prices for many of the raw materials they use.

The blade and razor division, Gillette's largest, posted an 11 percent increase in profit, the company said.

Duracell had a 5 percent rise in sales and a 69 percent increase in operating profit, compared with a year earlier, helped by cost savings in manufacturing and purchasing.

Oral care sales rose 14 percent and profit rose 28 percent, helped by products like the Oral-B Hummingbird power flosser and Brush-Ups teeth wipes.

Gillette shares were down $1.76, or 4.4 percent, at $38.65 on the New York Stock Exchange.