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P&G results lackluster
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October 31, 2000: 2:32 p.m. ET
Makers of Pampers says earnings, sales flat compared with year ago
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NEW YORK (CNNfn) - Consumer products maker Procter & Gamble reported lackluster earnings for its fiscal first quarter Tuesday, reflecting rising commodity prices and unfavorable currency exchange rates.
For the quarter ended Sept. 30, the Cincinnati-based maker of Pampers diapers, Ivory Soap and Tide laundry detergent reported operating earnings of $1.24 billion, or 88 cents a share, compared with $1.14 billion, or 88 cents a share, in the year-ago quarter. The latest results were in line with Wall Street's estimates and the company's previous guidance in August when it warned investors that profits would be flat in the first three months of fiscal 2001.
Including an $85 million charge from restructuring, the company earned $1.16 billion, or 82 cents a share in the quarter. Sales edged up 1 percent to $9.9 billion.
 The report sent P&G (PG: Research, Estimates) stock tumbling $6.44, or 8.3 percent to $71.44 in trading Tuesday.
Chief Financial Officer Clayton Daley told analysts during a conference call Tuesday that he expected 2001 earnings per share growth of between 7 and 10 percent in fiscal 2001 and sales growth of 4-to-6 percent, excluding the impact of weak currencies.
Heather Hay-Murren, a Merrill Lynch consumer products analyst, said investors shed the stock over fears of weak sales in the future, but called it an overreaction.
"It must be a Halloween thing," Hay-Murren said. "The quarter was in line with our expectations. Both sales and earnings saw a modest gain from sale of the Biz business. Their outlook should not have come as a huge shock to anybody. We're in an industry where expectations should already be modest."
Hay-Murren maintains an accumulate-buy rating on the stock, saying she expects more interest in the sector next year, particularly as investors pull out of overvalued tech stocks and return to such "old economy" stocks as P&G.
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P&G shares have been hammered this year by a series of earnings disappointments, as well as a management shakeup that led to the ouster of former CEO Durk Jager in June. The 162-year-old company, a component of the Dow Jones industrial average, has traditionally been one of Wall Street's stalwarts, but so far this year the company's stock is down more than 60 percent.
Rising commodity prices as well as a weaker euro have also contributed to the company's disappointing earnings.
"We've seen a lot of volatility in the foreign currency market, strengthening of the dollar in virtually every market," Daley told analysts during the conference call Tuesday. " We have in place global currency hedging plans, which are designed to curb the impact of weak currencies. Our objective has always been to remove short term volatility from our earnings. We planned for a strong dollar, but it has exceeded our expectations."
Daley also said that as pulp, petrochemical and energy costs have risen, the company has increased prices to maintain profits.
However, he added that competitors have tried to capture market share by lowering prices when Procter increases prices. He reassured analysts that the company would be undercut by competitors.
As an example, he noted the company was lowering prices on Bounty products in the United States by 4.5 percent and lowering prices on diaper and laundry products in the United Kingdom under the Kimberly-Clark brand.
Hay-Murren said investors were shaken at the news that P&G had to trim its prices on Bounty paper products, but cautioned traders to remember than the company had initially raised its prices by 9 percent to cover rising pulp costs. So the rollback is actually a modest one, and prices for the product are still higher.
P&G offers outlook for the second quarter
The company also said it expects to earn 91-to-93 cents a share in the current quarter, within range of Wall Street's forecast of 93 cents a share, according to First Call. It attributed the positive guidance to ongoing divestiture of minor brands, including Clearasil.
"We've delivered on expectations this quarter and are focused on continuing to improve our results and meeting expectations as the year unfolds," Chief Executive A.G. Lafley said. "We have a clear game plan to do this: lead innovation, build big brands and leverage global scale to create leadership market shares and total shareholder return."
In the fabric and home care unit, P&G said volume remained flat, with net sales declining 3 percent to $3.08 billion. Net earnings for the unit were up 3 percent to $498 million. The benefit of higher prices for laundry products was offset by weak European currencies, the company said. However, it attributed earnings growth in the unit to lower costs in developing markets, minor brand divestitures and lower taxes.
Net sales of paper goods increased $3.04 billion, chiefly because of strong sales in Latin America and growth in Western Europe and China. However, weak European currencies tempered that sales growth, the company said. Net earnings declined four percent to $329 million, mainly because of weak currency exchanges.
Net beauty sales grew 2 percent to $1.87 billion despite weak currencies. Net earnings for the division increased 19 percent to $267 million.
Health care sales grew 24 percent to $990 million in the quarter, thanks mainly to continued growth of the Iams pet health and nutrition business, which P & G acquired in Sept. 1999. However, net earnings decreased 11 percent to $81 million as licensing and divestiture costs offset acquisition growth.
Food and Beverage sales slid 13 percent to $1.05 billion, reflecting softness in both the snacks and beverage business. The beverage business declined on heavy competition in juice. Net earnings decreased 29 percent to $75 million. 
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Procter & Gamble
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