Procter & Gamble Q4 profit rises; sees higher input costs in FY09

(RTTNews) - Consumer goods giant Procter & Gamble Co. (PG | Quote | Chart | News | PowerRating) on Tuesday reported a 33% surge in its profit for the fourth quarter, helped by tax benefits, in addition to price increases and cost controls that offset rising commodity costs. Net sales for the latest quarter grew 10% and beat analysts' consensus revenue estimate. For fiscal year 2009, the company raised the upper end of its adjusted earnings outlook by two cents. However, the company also said it estimates commodity and energy costs for the year to increase $3 billion from fiscal year 2008, thus hurting profit margins.

In addition to raising prices and controlling costs, P&G has also been discarding slower-growth brands to enhance its profitability. In June, the company announced a deal to sell the Folgers coffee business to J.M. Smucker Co. (SJM | Quote | Chart | News | PowerRating) for about $3.3 billion, while last month, it said it would sell its ThermaCare heat wrap to Wyeth (WYE | Quote | Chart | News | PowerRating).

Fourth Quarter Results

The company's net earnings for the fourth quarter surged 33% to $3.02 billion from $2.27 billion in the previous-year quarter, while earnings per share climbed 37% to $0.92 from $0.67 in the prior-year period.

Net tax benefits, attributed to several significant adjustments to tax reserves in the U.S. and other countries, added $0.12 per share to the quarter.

Excluding these tax adjustments, adjusted net earnings per share for the latest quarter was $0.80. On average, sixteen analysts polled by First Call/Thomson Financial expected earnings of $0.78 per share.

Net sales for the quarter grew 10% to $21.27 billion from $19.27 billion last year and beat analysts' consensus revenue estimate of $21.05 billion.

In July, the maker of Tide laundry detergent and Pampers diapers had confirmed its earnings and sales growth outlook for the fourth quarter. The company said it continues to expect earnings per share for the quarter in a range of $0.76-$0.78 per share and sales growth of 8% to 10%. Peer Performance

Among the company's peers, in July, New Jersey-based Johnson & Johnson (JNJ | Quote | Chart | News | PowerRating) reported an 8% increase in its profit for the second quarter to $3.33 billion from $3.08 billion a year ago, helped by strong sales of consumer products and medical devices that offset a marginal increase in sales of pharmaceutical products. Earnings per share for the quarter increased to $1.17 from $1.05 in the prior-year period. Excluding a charge, net earnings for the quarter increased 9.3% to $3.38 billion from $3.08 billion in the previous-year quarter, while adjusted earnings per share climbed 12.4% to $1.18 from $1.05 in the year-ago period. Sales for the quarter increased 8.7% to $16.45 billion from $15.13 billion in the same period last year.

Colgate-Palmolive Co. (CL | Quote | Chart | News | PowerRating) reported an 18.8% rise in its profit for the second quarter to $493.8 million from $415.8 million in the previous-year quarter, helped by double-digit sales growth on higher volume and pricing. Earnings per share increased to $0.92 from $0.72 in the same period last year. Excluding restructuring costs, adjusted net income for the quarter increased 14% to $523.3 million from $457.5 million last year, while earnings per share rose 17% to $0.98 from $0.84 a year ago. Worldwide sales grew 16.5% to $3.97 billion from $3.41 billion in the previous-year quarter.

Other Metrics

P&G said that price increases added 3% to net sales, while favorable foreign exchange contributed 6% to sales growth. Organic sales, which exclude the impacts of acquisitions, divestitures and foreign exchange, increased 5%. The company noted that net sales in developing regions continued to grow double-digits. Organic volume for the quarter, which excludes a negative 1% impact from the Western European tissue divestiture, increased 4%.

Operating income for the quarter climbed 13% to $3.84 billion from $3.40 billion in the prior-year period. Operating margin increased 50-basis points as overhead productivity improvements and increased pricing more than offset a significant increase in commodity and energy costs.

The company launched several new initiatives during the quarter including Pantene Beautiful Lengths, Gillette Hair Care, Pampers UnderJams, Oral-B CrossAction Pro-Health, Actonel Once-a-Month and Olay Regenerist 14 Day Skin Intervention and Definity Color Recapture Moisturizer.

A.G. Lafley, Chairman of the Board and Chief Executive Officer of P&G said, "Once again, P&G delivered top and bottom line growth at or above the company's targets -- while also successfully completing the integration of Gillette. We're leading innovations across the brand portfolio, building value for consumers and customers which is critical to delivering good results in a difficult economic environment."

During the quarter, the company repurchased $2.0 billion of its stock as part of its previously announced three-year $24 billion-$30 billion share repurchase program.

Segmental Results

Beauty GBU

Net earnings for the beauty segment were flat with a year ago at $569 million as higher net sales and a lower tax rate were offset by increased overhead spending and higher commodity costs. However, net sales climbed 11% to $5.0 billion, helped by a 2% increase in volume, a 2% pricing impact and a 7% favorable foreign exchange impact.

Cosmetics volume grew high-single digits behind the Cover Girl Lash Blast mascara initiative, while Skin Care volume grew mid-single digits behind strong growth in developing regions. Hair Care volume grew low-single digits as strong growth on Head & Shoulders, Rejoice and Nice 'N Easy were partially offset by declines in Professional Hair Care and on Pantene in North America.

Grooming net sales were up 12% to $2.1 billion for the quarter, helped by volume increase and favorable foreign exchange. The company noted that price increases taken across premium shaving systems added 2% to net sales. Volume for Braun declined low-single digits as strong growth in developing regions was more than offset by the company's previously announced exits of the U.S. home appliance business and the Tassimo coffee appliance business. Net earnings climbed 31% for the quarter to $396 million.

Health & Well-Being GBU

The company's health care business generated quarterly net sales of $3.6 billion, up 7% from the prior-year quarter. The net sales growth was helped by a 2% increase in volume and a 6% favorable foreign exchange impact, but was partially offset by a negative 2% product mix impact. Net earnings rose 15% to $526 million on net sales growth, lower overhead and marketing spending as a percentage of net sales and a lower tax rate more than offset higher commodity costs.

Volume for Feminine Care products increased in mid-single digits as double-digit growth on Always and Naturella was partially offset by the divestiture of the Adult Incontinence business in North East Asia. Oral Care volume increased low-single digits primarily on growth in Oral-B toothbrushes. However, volume in Pharmaceuticals and Personal Health declined low-single digits as a double-digit decline in Prilosec OTC due to the loss of marketplace exclusivity more than offset high-single digit growth on Actonel and the addition of the Swiss Precision Diagnostics joint venture.

Snacks, coffee and pet care net sales totaled $1.2 billion in the quarter, up 8% from last year. Net earnings increased 6% to $132 million, helped by sales growth and lower overhead and marketing spending, partially offset by higher commodity costs.

Household Care GBU

The company reported a 13% rise in fabric care and home care net sales to $6.1 billion, driven by 4% volume growth. Price increases added 4% to net sales, while foreign exchange contributed 6%. These were partially offset by a negative 1% mix impact primarily from shifts toward larger sizes in Fabric Care. Fabric care and home care's net earnings increased 11% year-over-year to $843 million.

Baby care and family care net sales were up 10% in the quarter to $3.6 billion, aided by a 3% increase in volume. Favorable foreign exchange added 6% and price increase added 2% to net sales growth. Baby Care volume grew high-single digits driven by strong growth on Pampers and Luvs. Family Care organic volume increased high-single digits behind continued success of product initiatives on Bounty and Charmin. Net earnings grew 22% to $409 million as net sales growth and cost savings projects more than offset higher commodity and energy costs as well as higher marketing spending

Fiscal Year 2008 Results

The company's net income for the full year climbed 17% to $12.08 billion from $10.34 billion in the prior year, while earnings per share climbed 20% to $3.64 from $3.04 in the previous year.

Results for the year include net tax benefits of $0.14 per share on significant tax adjustments to tax reserves in the US and other countries. Excluding these tax adjustments, the company's adjusted earnings per share for the year was $3.50.

Net sales for the year increased 9% to $83.50 billion from $76.48 million a year ago.

Outlook

For the first quarter of fiscal year 2009, P&G expects earnings per share between $0.98 and $1.00. Total sales for the quarter are expected to increase 7%-10%, and organic sales are expected to rise 4%-6%. Analysts expect earnings of $1.00 per share on revenues of $21.69 billion for the quarter.

The company also said that operating margin for the quarter is expected to decline by 80 to 140-basis points as significant productivity improvements in SG&A will be more than offset by lower gross margins.

For fiscal year 2009, P&G expects its underlying business to deliver the company's annual target growth rates including organic sales growth of 4%-6% and earnings per share growth of 10%.

The company expects earnings per share for the year in a range of $4.18-$4.25, including an estimated $0.50 per share gain from the Folgers sale, partially offset by a temporary increase in restructuring spending of about $0.12 per share.

Excluding items, the company expects full-year adjusted earnings per share in a range of $3.80-$3.87, which includes $0.04 per share of Folgers dilution. Previously, the company forecast earnings per share in a range of $3.80-$3.85. Total sales for the year are expected to increase 5%-7%. Analysts estimate earnings for the year of $3.85 per share on revenues of $88.40 billion.

The company estimates commodity and energy costs to increase $3 billion from fiscal year 2008. The company noted that price increases were being implemented at levels sufficient to offset the dollar value of higher commodity and energy costs and maintain profit, but not at levels necessary to maintain gross or operating margins.

Stock Quotes

In Tuesday's regular trading session, P&G is trading at $67.59, up $1.77 or 2.69% on a volume of 4.62 million shares. The stock has been trading in a range of $60.05-$75.18 in the past 52 weeks.

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