Procter & Gamble posts a profit, boosts forecast

Revenue growth outlook disappoints some investors

August 06, 2002|By BLOOMBERG NEWS

CINCINNATI - Procter & Gamble Co., the largest U.S. household-goods maker, reported a fourth-quarter profit yesterday as sales of its Cover Girl cosmetics and Crest toothbrushes rose. Some investors were disappointed by the company's slower-than-expected revenue growth, although it raised its quarterly profit forecast.

Net income was $910 million, or 64 cents a share, compared with a loss of $320 million, or 23 cents, in the corresponding period a year earlier. Sales increased 6.1 percent to $10.2 billion in the three months that ended June 30, less than some analysts' estimates of a gain of as much as 7 percent.

"People are concerned about revenue growth," said Neal Goldner, an analyst with State Street Global Advisors, whose $770 billion in assets include 34 million P&G shares. "You can't grow a company from cost savings forever."

Chief Executive Officer A.G. Lafley has met his goal of a 10 percent profit increase a year early by shedding slow-growing lines such as Jif peanut butter and by eliminating 9,600 jobs and expanding more- profitable health-care lines such as electric toothbrushes and the Actonel bone-building drug. Lafley is using most of the savings to increase television advertising rather than to develop products.

The company's shares fell $2.40 to $87.44 yesterday. They had climbed 14 percent this year, making P&G the best-performing component of the Dow Jones industrial average.

P&G said its profit in the current quarter will rise by 11 percent to 15 percent, exceeding Lafley's 10 percent goal. Sales this quarter will be boosted by currency translation.

The company's gross margin widened to 48.1 percent of sales from 45.3 percent.

Lafley, who took over the company two years ago, has used savings from closing Olay cosmetics and Fit produce wash, and reducing spending on factory equipment to boost marketing and new products.

"This has been a comeback year for P&G," Lafley said during a conference call with analysts and investors.

Excluding $175 million in costs for job cuts and plant closings, P&G said, it would have earned 77 cents a share, 2 cents more than the analysts estimated. The company earned 63 cents a share before $1.16 billion in expenses to close plants and leave product lines in the year-earlier period.

"They have been engaged in a cost-reduction program and are achieving significant savings," said Arthur Cecil, an analyst with T. Rowe Price Associates, whose $160 billion in assets includes 3.2 million P&G shares. "That is allowing them to increase advertising" and lift sales.

The company, which has more than 250 brands, said it will meet Lafley's 10 percent profit goal for its 2003 fiscal year.

The profit increase in the second quarter will be hurt by comparisons with profits a year earlier, when the sale of the Comet cleaner brand added 9 cents a share, said Chief Financial Officer Clayton Daley. He wasn't more specific.

"They are not going to meet the 10 percent [earnings per share] goal in the December quarter," said Bill Steele, an analyst at Banc of America Securities.

Lafley and Daley plan to certify the company's results, in compliance with the new rules adopted by the Securities and Exchange Commission, when P&G files financial statements with the agency.

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