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P&G quarterly profit drops 28% on slowing sales

NEW YORK (AFP) – Rising materials costs pushed consumer goods giant Procter & Gamble's second-quarter profits sharply lower, the company said Thursday, predicting a better second half.

P&G's net earnings for the three months that ended December 31 were off 28 percent at $3.33 billion, down from $4.66 billion a year earlier.

P&G cited higher raw material costs and an "unfavorable product mix" that forced its operating margins to shrink 2.1 percent.

Net sales worldwide were up two percent to $21.3 billion, and P&G said it scored solid growth in key markets and for its key brands.

"Volume was up six percent behind growth in all major geographic regions, 16 of 17 top countries, five of six business segments and 19 of 23 billion-dollar brands," the giant consumer goods company said in a statement.

"This is driving strong volume and sales growth ahead of market levels," said chief executive Bob McDonald.

Earnings per share for the quarter on a diluted basis were $1.11, compared to analysts' average prediction of $1.10.

"Core EPS is ahead of year-ago levels, and we are on track to deliver seven to nine percent growth for the year."

P&G pointed out that the 2009 second quarter net profit had included $1.5 billion from discontinued operations; with this component removed, earnings jumped 6.0 percent.

McDonald said the second half of the fiscal year should see less pressure from commodities than the first six months and that will boost the company's bottom line.

"The fiscal year guidance implies acceleration in the second half," he said in a conference call.

"Prices will swing to a positive against a negative by the end of the fiscal year."

He said the entire industry has been hit by rising materials prices.

"We'll be working to develop substitute materials for those rising quickly," he added.

But sales in the key US market were still "lower than expected" this year, McDonald noted.