Procter & Gamble Co. tempered its earnings outlook for the year Thursday because of fast-rising costs for raw materials and fuel and the still-sluggish economies in the U.S. and other developed countries.
The maker of Pampers diapers, Tide detergent and Crest toothpaste said that profits and sales rose in its third quarter, led by sales in emerging markets. The company also announced plans for more price increases.
P&G, based in Cincinnati, said net income was $2.87 billion, up 11 percent over last year. Earnings per share were 96 cents on revenue of $20.23 billion. Analysts expected 97 cents a share on $20.24 billion.
P&G shares fell 85 cents to $63.17 in premarket trading. They have traded in a 52-week range of $39.37 and $66.95.
P&G reported double-digit sales increases in Asia, with strong sales for Pantene shampoo there and in Brazil, and for Gillette razors in countries such as India, areas the company is increasingly relying on for sales growth. But developed market sales, which still account for two-thirds of P&G's business, continued to be nearly flat.
"The results show that consumers in developed markets are struggling," Bob McDonald, chairman and CEO, told reporters. "They're struggling with higher gasoline prices ... which is causing them to make choices."
McDonald said P&G is counting on offering more value and innovation, such as Tide Pods, concentrated laundry detergent tablets it will roll out in North America this July, to keep consumers buying its big-name brands instead of trading down to store brands or other cheaper competitors.
The world's largest consumer products maker and its competitors face rising costs for key raw materials such as pulp and resin and fuel and have begun testing household tolerance for higher prices.
Jon Moeller, chief financial officer, said P&G's commodity costs are increasing even faster than expected earlier, now estimated at $1.8 billion higher for the year, up from $1 billion projected in February, and were more than double what was expected in the third quarter.
P&G increased prices in the quarter on Gillette blades and razors and Duracell batteries, and just hiked prices on Pampers diapers and wipes, Charmin toilet paper and Bounty paper towels. Moeller said pulp costs are up 10 percent for the paper-related products. He said diesel oil is up 25 percent, adding to transportation costs, while resin used in packaging rose 15 percent.
P&G said Thursday it will raise prices this summer on Head & Shoulders shampoo, Iams pet food and Cascade dishwashing detergent, among other items. The company also said it is trying to reduce costs with less packaging, alternative materials and more efficient energy use.
Moeller told analysts on a conference call that Middle East turmoil and the Japanese earthquake also hurt sales in those markets, although P&G operations are continuing as normal.
The company Thursday dropped the high end of its earnings outlook for the year, to between $3.91 and $3.96 per share from $4.01. Analysts expect $3.96 on $82.02 billion in revenue. It also narrowed its outlook for organic sales, a measure that excludes impacts of currency fluctuations and acquisitions or divestitures, to 4-5 percent for the year from 4-6 percent.
For overall sales, P&G expects growth of 4-5 percent; analysts project about 3 percent for the year, to $82.02 billion.
For the current quarter that ends in June, P&G expects earnings of 80-85 cents per share, with revenue expected to grow 8 percent to 10 percent with the help of higher prices and favorable foreign exchange.
Analysts surveyed by FactSet expect, on average, 85 cents on $20.28 billion, a sales increase of 7 percent.