October 27, 2010 / 12:00 PM / 7 years ago

UPDATE 4-New products, overseas sales drive P&G profits

* EPS $1.02 vs Wall Street view $1.00

* Volume grows more in emerging markets

* Marketing spending, input costs still a factor

* Volume gains could be tested - analyst

* Shares rise 1 percent (Adds analyst comments, financial details)

By Jon Lentz

NEW YORK, Oct 27 (Reuters)- Procter & Gamble Co posted a higher-than-expected quarterly profit on new products and strength in markets like China and Brazil, but said additional marketing spending and higher commodity costs would hurt the current quarter.

Cost cuts also helped boost profits at P&G, the the world’s largest household products maker, as the sluggish U.S. and European economies caused consumers to buy lower-priced products in some categories.

As the U.S. economy haltingly recovers from recession, consumer products companies are using promotions and focusing on new products with fresh features to attract purchases. P&G (PG.N), which makes products that range from Pampers diapers to Olay skin cream, has the size to do well in this type of market, analysts said.

“Given that P&G has the deepest pockets and strongest innovation pipeline, we anticipate the company will benefit the most in the current competitive environment,” Stifel Nicolaus’s Mark Astrachan wrote in a note to clients.

P&G’s fiscal first-quarter, which ended Sept. 30, showed pockets of strength in its fabric care, home- and baby-care businesses that were boosted by lower prices and promotions. said Sanford Bernstein analyst Ali Dibadj.

"The pricing is not becoming more benign in the industry," Dibadj said. "Competition is still high." (For a graphic on P&G earnings, click on r.reuters.com/tam52q)

STRONG VOLUME IN CHINA, BRAZIL

P&G said on Wednesday that first-quarter profit fell to $3.08 billion, or $1.02 per share, from $3.31 billion, or $1.06 per share, a year earlier.

Analysts on average estimated earnings of $1 a share.

Volume, a measure of products shipped that factors out currency fluctuations and price changes, rose 8 percent, with double-digit increases in developing markets such as China and Brazil.

But pricing, unfavorable currency exchange rates and the shift by consumers to lower-priced products pressured overall revenue.

Revenue rose just 2 percent to $20.12 billion, compared with the analysts’ average estimate of $20.24 billion.

The gains in volume will be tested in the current quarter as the company juggles challenges including price competition, rising commodity costs and unfavorable foreign exchange rates, said Morningstar analyst Lauren DeSanto.

“They (P&G) probably are profitably taking market share,” DeSanto said. “The question is going to be over coming quarters how sustainable is that. What’s the level of spending that’s needed for some of these categories?”

On Tuesday, Kimberly-Clark Corp (KMB.N), which competes with P&G in such categories as diapers, tissues and tampons, posted lower-than-expected earnings due to sluggish sales and lower prices. [ID:nN26284542]

P&G said it expected full-year earnings per share of $3.91 to $4.01, excluding special items. Analysts on average had forecast $3.97 per share, according to Thomson Reuters I/B/E/S.

P&G has invested in new products, including Pampers Dry Max diapers, the Fusion ProGlide razor and Crest 3D White tooth-whitening strips, and plans to continue introducing more new products this fiscal year.

But DeSanto said that there were some weak points among the company’s higher-priced products.

“It seems to me it’s not the prestige, it’s not the premium-priced, it’s the mid-tier to lower-tier (products) that are accelerating,” DeSanto said.

P&G’s developed markets grew below the company’s expectations at around 1 percent, while developing markets grew eight times as fast, McDonald said.

P&G’s shares rose 1 percent to $62.92 in midday trading on the New York Stock Exchange. (Reporting by Jon Lentz and Brad Dorfman; Editing by Lisa Von Ahn and Maureen Bavdek)

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