Rising Materials Prices Pressure P&G

28-Oct-2010

I like this.

By







By ANJALI CORDEIRO

P&G chief Bob McDonald said Wednesday U.S. consumer demand is still ‘dampened.’

Procter & Gamble Co.’s fiscal first-quarter earnings fell 6.8% as the company sold its pharmaceuticals business last year and higher commodity costs dented profit margins.

The consumer-products giant is in the midst of a broad push to grab market share around the world. It has launched new products, marketed its offerings more aggressively and offered consumers more promotions. But sharply higher costs for materials such as paper pulp and plastic resins are affecting the bottom line. For instance, P&G is feeling the pinch of higher pulp costs with its Charmin toilet paper and Bounty paper towels.

P&G didn’t break out the impact of different commodities on its earnings but it said gross margin fell to 51.8% from 52.6%.

Companies like P&G also use a variety of plastics and packaging for the shampoos and lotions they sell. In the three months ended June, spot prices for plastic resin were up roughly 20% to 30% from a year earlier, Caris & Co. analyst Linda Bolton Weiser estimated. “We are now seeing those costs flow through,” she said.

P&G will push to offset commodity price pressures with cost savings rather than price increases, Chief Executive Bob McDonald said Wednesday. In cases where price increases are necessary, the company will choose to do so through the launch of innovative new products, he said.

Other manufacturers are being hurt by higher raw material costs, whether for pizza or packaging or coffee beans. Kimberly-Clark Corp., which makes Kleenex tissues and Scott paper towels, earlier this week reported third-quarter earnings fell 19%, hurt by rising commodities costs. Kimberly-Clark lowered its 2010 earnings guidance this week, partly because of higher costs for raw materials.

Commodities aren’t the only challenge these companies face. While developing markets continue to grow fast, consumer-goods sales in the U.S. and other developed markets remain sluggish.

Mr. McDonald said consumer demand is still “dampened” in the U.S.

For the quarter ended Sept. 30, P&G’s earnings fell to $3.08 billion, or $1.02 a share, from $3.31 billion, or $1.06 a share, a year ago.

At the end of Oct. 2009, P&G completed the sales of its global pharmaceuticals business to Warner Chilcott. The results in the year-earlier quarter reflected earnings from that pharmaceutical business, which included such brands as Asacol tablets for ulcerative colitis. On a continuing operations basis, P&G’s first quarter earnings rose to $1.02 a share from 97 cents a share.

Revenue rose 1.6% to $20.12 billion.

Organic sales—which exclude acquisitions and foreign exchange impacts—increased 4% as volume jumped 8%. Foreign-exchange fluctuations hurt sales growth by three percentage points.

P&G projected second-quarter earnings of $1.05 to $1.11 a share, with revenue up 2% to 4% and organic sales rising 3% to 5%.


Tags: , ,

Post a Comment

Your email is never published nor shared. Required fields are marked *

*
*

Subscribe without commenting