P&G cuts outlook, says sales slowing

Even Procter & Gamble Co., the world's largest consumer products maker, is getting dragged down by the spreading recession that has households around the globe looking for ways to tighten their budgets.

P&G reported Friday that its second-quarter profit jumped 53 percent, but that was boosted by the sale of its Folgers coffee business last year. The current outlook isn't so robust, and P&G stock tumbled 6 percent Friday to close at a 52-week low.

The company dropped its earning projections for the full year, and expects total sales to fall in the current quarter and possibly for the year. Chairman and CEO A.G. Lafley had warned in December that P&G, long considered a safe harbor in economic tempests, is recession-resistant - but not recession-proof.

Friday, he told investors that he remains confident for the long term, but there could be more turbulence in the meantime.

"We're going to have to see how deep the recession is ... and what (the market condition) looks like when we do come out, and then we'll be realistic," Lafley said in a conference call. "I think we're in a very volatile and obviously uncertain period."

P&G shares fell $3.72 to $54.50. They have traded as high as $73.57 in the past year, but have been sliding since mid-September.

Edward Jones analyst Jack Russo remains optimistic about P&G for the long term, calling it a well-managed company with a strong portfolio. He said its current sales outlook shows that people will cut back just about anywhere in hard times.

"I don't think anyone is immune to some of the pressures we're seeing now," Russo said in an interview. "You've just got to grit your teeth as an investor the next couple years."

He has a "buy" rating on P&G. But Bill Schmitz Jr., a Deutsche Bank analyst, has the stock as "hold."

"With unemployment growing, tradedown expanding and retailer destocking accelerating, (the) growth outlook remains bleak," Schmitz said in a note Friday, adding that it's "hard to get excited about the name here."

P&G, whose brands cover a wide range of household, beauty, and personal care products such as Tide detergent, Pampers diapers and Gillette shavers, said net sales fell 3.2 percent to $20.37 billion on lower volume and a stronger dollar. It also confirmed that organic sales - those not related to acquisitions - have slowed below its targets. Analysts had expected revenue of $20.64 billion, according to a Thomson Reuters poll.

The company earned $5 billion for the quarter, compared with $3.27 billion a year earlier. Earnings per share were $1.58, in line with Wall Street expectations, and include a gain of 63 cents per share from the Folgers deal with Orrville, Ohio-based jams and jellies maker J.M. Smucker Co. A year earlier, P&G earned 98 cents per share in its second quarter.

Lafley expects P&G to continue to grow profitably by offering better value and innovation and with cost-cutting and increased productivity.

He said the company is trying to increase its market share through promotions such as offering more coupons and by emphasizing value - recent Gillette Fusion commercials say its blades deliver a comfortable shave for $1 a week, less than many men spend each day on coffee. Fusion's double-digit sales growth was among the few bright spots in Friday's report.

U.S. households have been trimming spending and some are turning to cheaper store and generic brands. P&G officials said some women are cutting down on beauty spending, fine fragrances are down, and that households are emptying their pantries and drawers of products like its Duracell batteries before buying any more while retailers are tightening inventories.

P&G said its own lower-priced brands, such as Gain detergent and Luvs diapers, and "basic" versions of Charmin toilet paper and Bounty paper towels showed solid growth.

The company's organic sales growth was down, to 2 percent. P&G had warned in December it would miss its organic sales target of 4 percent to 6 percent.

P&G said Friday it now expects organic sales to grow by 2 percent to 5 percent for its full fiscal year ending in June, with total sales growth that will be from flat to down 4 percent.

The Cincinnati-based company said it is "comfortable" with analysts' consensus earnings estimate of $4.29 for its fiscal year. P&G's revised forecast was $4.20 to $4.35 per share, down from earlier guidance of $4.28 to $4.38.

For the current January-March quarter, P&G expects organic sales growth of 2 to 5 percent, but said total sales could fall 2 percent to 7 percent. P&G projects earnings of 78 cents to 86 cents per share. Analysts are projecting a profit of 85 cents per share.

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