P&G Meets Earnings Expectations, Raises Guidance
Like many manufacturers of consumer goods, P&G took a hit during the recession as consumers cut their shopping lists. The maker of Pampers, Tide and Charmin reacted by dropping prices, shrinking packaging and marketing some products at lower prices, such as Charmin Basic toilet paper, in order to fight off competition from private-label brands.
Net sales rose 6% to $21.03 billion, and the company saw organic sales growth -- excluding acquisitions and foreign currency swings -- of 5%. Nearly all product categories showed organic growth, except grooming, which was flat; the biggest growth came in necessities such as family and baby care (up 8%), and fabric and home care (up 7%)
As the economy recovers, sales are expected to rebound, while inflation and commodity prices remain at manageable levels. This would benefit profits at makers of necessity products such as P&G, as long as they are not dragged down by weak sales of discretionary products such as cosmetics and fragrances.
By comparison, rival Colgate-Palmolive (CL) -- which is more concentrated on household products and has less presence than P&G in areas such as cosmetics and pharmaceuticals -- posted a strong fourth quarter. Colgate's earnings were up 27% and sales grew 11.5% worldwide, with organic sales up 6.5%. Tellingly, while sales of toothpaste and soap rose, the only division with lower sales was Hill's, Colgate's pet-food unit.
P&G's management forecast that sales growth will accelerate next quarter to between 7% and 10%, and earnings per share will grow between 2% and 8%. The company's management also updated its guidance for the full fiscal year 2010, raising its prediction for organic growth by one percentage point, to the 3% to 5% range, but held to its previous earnings guidance of $3.44 to $3.54 per share.
"Our investments in innovation, portfolio expansion, marketing support and consumer value are working," said CEO Bob McDonald in a statement. "While economic uncertainty remains, we're confident these strategies will enable P&G to serve more consumers in more parts of the world, more completely and deliver profitable market share growth."