Suhair blog

Corrected: P&G, Colgate hurt by slow developed markets

(Corrects Bob McDonald's title to CEO of P&G, paragraph 8)By Jessica Wohl

CHICAGO (Reuters) - Procter & Gamble Co (PG.N) and smaller rival Colgate-Palmolive Co (CL.N) posted lower quarterly net income, hurt by sluggish sales in developed markets like the United States.

Household products makers have been using promotional pricing and coupons to woo shoppers who shunned pricier brands during the recession. Now that consumer confidence is rising, the companies hope people will once again covet name-brand items.

P&G's sales growth came in at the low end of its forecast and below Wall Street's expectations. Still, the company said U.S. demand for its higher-end products exceeded its expectations and that it is gaining market share at home and abroad.

"I would call this a low-quality quarter," said Tim Hoyle, director of research at Haverford Investments, which has more than $6 billion in assets under management and owns P&G. "They're in a tough spot, really, to grow earnings anywhere close to what most investors would want to give them a premium valuation." He noted that a lower tax rate helped earnings.

While P&G and Colgate both topped Wall Street's earnings expectations, sales were sluggish.

P&G shares fell to $64.46 in premarket trading Thursday, down from Wednesday's New York Stock Exchange close of $66.11.

DEMAND STRONG AT THE TOP, P&G SAYS

Both P&G and Colgate have been bringing out new goods, with P&G offering a lower-priced versions of goods like Bounty paper towels as well as premium items such as Gillette Fusion ProGlide razors that offer smoother shaves. Colgate, meanwhile, has come out with a variety of new and updated toothpastes.

"We believe that we're in the midst of a recovery," P&G Chief Executive Bob McDonald told reporters about the United States.

Growth was pretty fast in the beginning of the quarter, then slowed in December as people spent their money on holiday-related items.

"We're seeing a good pace of recovery and a good pace in January," McDonald added.

P&G is confident that Americans are willing to pay for new products, despite continued pressure from high unemployment.

U.S. demand for premium innovations exceeded P&G's expectations, even straining the company's supply chain, said Chief Financial Officer Jon Moeller.

P&G, the maker of Gillette razors and Crest toothpaste, earned $3.33 billion, or !B1.11 per share, in the second quarter ended in December, down from $4.66 billion, or $1.49 per share, a year earlier. Much of the decline stemmed from a gain in the year-ago period from the sale of its pharmaceuticals business.

Excluding unusual items, earnings from continuing operations were $1.13 a share. Analysts' average forecast was $1.10, according to Thomson Reuters I/B/E/S.

P&G's sales climbed 2 percent to $21.3 billion, while analysts were looking for $21.58 billion. The volume of goods sold rose 6 percent.

Organic sales, which strip out the impact of acquisitions, divestitures and foreign exchange fluctuations, rose 3 percent, at the low end of P&G's 3 to 5 percent forecast.

Colgate, best known for its namesake toothpaste, earned $624 million, or $1.24 per share, in the fourth quarter, compared with $631 million or $1.21 per share a year earlier.

Analysts had expected $1.23 per share.

Colgate, which competes directly with P&G in areas such as toothpaste and toothbrushes, said sales fell 2.5 percent to $3.98 billion. Analysts on average forecast $4.06 billion.

Colgate's organic sales rose 1 percent.

P&G stood by its fiscal 2011 forecasts, calling for earnings from continuing operations of $3.91 to $4.01 per share and organic sales growth of 4 percent to 6 percent.

Analysts on average expect a profit of $3.98 per share.

Colgate stood by its forecast for a mid-single-digit percentage rise in earnings per share for 2011.

(Reporting by Jessica Wohl and Brad Dorfman; editing by John Wallace and Matthew Lewis)