Procter & Gamble Earnings Up

Procter & Gamble Co. said Thursday its quarterly net income rose 9 percent as the consumer products giant posted its first sales increase in a more than a year and benefited from job cuts and other cost-saving measures implemented in the past two years.

The maker of Folgers coffee, Crest toothpaste and Pampers diapers also said it expects earnings before restructuring items to rise at a high-single-digit percentage rate in the March quarter, based on strong sales volume growth and cost savings. Analysts on average were forecasting a 5 percent increase.

"This is a company that's entering the sweet spot of their restructuring savings," Sanford Bernstein analyst Jim Gingrich said. "I don't think people are going to find too much to pick at about this result."

In afternoon New York Stock Exchange trade, P&G shares were up $3.18, or 4.1 percent, at $81.47, nearing their highest level in a year. The stock was also upgraded to a "buy" rating from "hold" by Credit Suisse First Boston Thursday.

The Cincinnati company posted net income of $1.3 billion, or 93 cents a share, for the second quarter ended Dec. 31, up from $1.19 billion, or 84 cents a share, a year earlier.


Sales rose 2 percent to $10.4 billion, boosted by new products like tooth whitener Crest Whitestrips as well as beauty care products. Volume, which excludes foreign exchange and price variations, rose 5 percent, including acquisitions and divestitures.

"You're starting to see an improvement in their market share, which is reflected in better than expected volumes in the current quarter and the bullish (outlook) for the (next) quarter," Gingrich said.

Core earnings, which exclude restructuring items, were $1.03 a share, up 6 percent from a year earlier.

Many analysts had raised their second-quarter estimates, which most recently were at $1.02 to $1.03 a share, after Procter & Gamble said in December that earnings would come in higher than Wall Street forecasts at the time.

Over the past several years, P&G has taken several steps to try to boost sales of its core brands, while also cutting costs, eliminating some smaller or underperforming brands, and cutting thousands of jobs.


The company said Thursday it expects sales volume to increase at a high single-digit percentage rate in the third quarter, with sales rising in the mid-single digits, excluding foreign exchange.

"I was very pleased with the volume, and I'm pleased with the forward outlook," said Sanford Bernstein analyst Ann Gillin Lefever, noting that it is a sign that the company's improvement was not just for one quarter.

The company also reaffirmed its full-year forecast of core earnings-per-share growth accelerating from the previous year, but not yet reaching double digits.

"We expect to be at our double-digit earnings-per-share objective next fiscal year," Chairman and Chief Executive A.G. Lafley said during a conference call with investors and analysts.

The company said it sees sales, excluding foreign exchange, at or ahead of last year's growth rate and approaching the target range of 4 percent to 6 percent. Volume growth is projected in the mid-single digits.

P&G said costs from its restructuring plan will be less than $1 billion this year, down from its previous forecast of $1.4 billion, because job cuts are coming from countries where severance is less expensive. But it still sees the total cost of the restructuring at $4.4 billion by 2004.

While analysts were impressed by the progress the company has made in the past year, some were cautious on the stock.

"I think it adequately reflects the potential for the next year or 18 months," said Banc One Investment Advisors analyst Tim Drake, who has a "hold" rating on the shares.