Procter & Gamble lowers forecast due to strong dollar
The maker of Tide detergent said it had not seen competitors match some of the price increases it imposed to mitigate higher commodity costs. That made P&G's products less attractive to shoppers focused on prices rather than brands and indicates the competition among household product makers shows no signs of abating.
Cincinnati-based P&G also said it is cutting about 1,600 corporate positions by the end of June, a move that should save it about $240 million a year before taxes. The cuts represent 1.2 percent of its total workforce of 129,000.
P&G is also cutting the number of technical centers it has and outsourcing some of the work it does in U.S. stores.
Excluding one-time charges, core earnings per share fell 3 percent to $1.10 as sales growth and cost cuts were not enough to offset double-digit increases in commodity costs. The profit topped analysts' average forecast of $1.08 per share, according to Thomson Reuters I/B/E/S.
While the profit beat expectations, some analysts said the quality of the report was disappointing.
P&G shares were down 0.6 percent at $64.42 in morning trading, compared with a 0.45 percent dip in the Dow Jones industrial average, of which it is a component.
PROFIT POUNDED BY CURRENCY
When fiscal 2012 began last July, P&G expected foreign exchange to add 2 percent to 3 percent to net sales, Chief Executive Officer Bob McDonald said.
Now, as the dollar has strengthened against currencies such as the ruble, zloty, real and peso, P&G expects the impact of currency rates to cut net sales by 1 percent this year, and it cut its fiscal-year profit forecast.
For the fiscal year ending in June, P&G now expects to earn $4.00 to $4.10 per share, down from a prior forecast of $4.15 to $4.33. Analysts had been expecting $4.17.
"While we are obviously not happy with the guidance cut, it is not completely unexpected, either, given the F/X environment," said Oppenheimer analyst Joseph Altobello.
The lower forecast comes the day after smaller rival Colgate-Palmolive Co said the stronger dollar could shave 4 percentage points from its earnings growth.
P&G often leads the industry in price increases, and competitors held off on matching some of its recent hikes.
In the United Kingdom, P&G's average retail price for laundry products is up 4 percent over the last six months, while those from competitor Unilever are down about 5 percent, McDonald said. The U.S. price of P&G's Tide powder detergent is up at a double-digit percentage rate from a year ago, while lower-priced competitor Church & Dwight Co Inc cut its prices in a low-single-digit range, he said.
P&G is responding by rescinding a small number of its price hikes. In August, it raised the U.S. price of its Cascade dishwasher detergent by an average of 8 percent. After its market share in that business fell more than 7 points, it will revert back to its earlier pricing starting next month.
P&G narrowed its 2012 organic sales forecast, calling for a rise of 4 percent to 5 percent, compared with prior expectations for 3 percent to 6 percent. Organic sales strip out the impact of acquisitions, asset sales and currency fluctuations.
P&G earned $1.69 billion, or 57 cents per share, in the second quarter ended in December, down from $3.33 billion, or $1.11 per share, a year earlier.
Much of the decline stemmed from writing off the value of the appliance and salon professional products businesses. The company suggested in its 2011 annual report that it might take such a step.
While P&G still thinks the businesses are attractive and remains committed to them, it wrote down their value due to their exposure to the tough Western European market, their discretionary nature, and increased competition, executives said.
P&G's quarterly sales rose 4 percent to $22.14 billion. Organic sales rose in each business unit and were up 4 percent overall. The volume of goods sold rose 1 percent, with growth in developing markets offsetting a decline in developed regions.
For the current third quarter, P&G forecast core earnings of 91 cents to 97 cents per share, compared with 96 cents a year earlier. It expects organic sales to rise 3 percent to 5 percent.
P&G's plan to sell its Pringles business to Diamond Foods Inc is on hold as Diamond investigates its payments to walnut growers. The snack foods company is expected to give an update on the issue by mid-February.
(Reporting by Jessica Wohl in Chicago; Editing by Lisa Von Ahn, Derek Caney and John Wallace)
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