• Procter & Gamble Co. lowered its earnings outlook for the year due to fast-rising costs for raw materials and fuel and the still-sluggish economies in the U.S. and other developed countries.
The maker of 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% over last year.
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 (see p. 61 in this issue), 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 just hiked prices on Pampers diapers and wipes as well as Charmin toilet paper and Bounty paper towels.
Moeller said pulp costs are up 10% for the paper-related products. He said diesel oil is up 25%, adding to transportation costs, while resin used in packaging rose 15%.
P&G will raise prices this summer on Head & Shoulders shampoo 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.
For overall sales, P&G expects growth of 4-5%; analysts project about 3% for the year, to $82.02 billion.
Nu Skin Expects Q1Revenue Will Be Up 9%
• Nu Skin Enterprises, Inc. said it expects to exceed previous company guidance by posting first-quarter revenue of approximately $395 million, a 9% improvement over the prior-year period. Revenue is expected to benefit approximately 5% due to foreign currency fluctuations.
“We are starting the year off strong with record first-quarter revenue, driven largely by impressive gains in our emerging markets,” said Truman Hunt, president and chief executive officer. “Our performance this quarter is particularly impressive when taking into consideration last year's first-quarter launch of ageLOC Transformation, which contributed to 23% growth. In addition, we estimate the natural disasters in Japan had a negative first-quarter impact of approximately $5 million in revenue and $.01 to earnings per share.
“Our overall geographic diversity contributed to the impressive quarter. Revenue was particularly strong in mainland China and South Asia/Pacific, which generated local currency growth rates of approximately 45% and 30%, respectively. South Korea and Europe were also solid performers in the first quarter.
“We anticipate that our U.S. business will report a decline of approximately 10% partially due to a difficult comparison with the prior-year launch of ageLOC Transformation, while Japan revenue is expected to decline 7%, which includes the negative impact from the natural disasters,” Hunt continued.
“As the Nu Skin global family rallies around our friends and colleagues in Japan, we have gained an even greater appreciation for the resiliency of the people of this great nation. We have been inspired by our Japanese sales leaders as they courageously respond to this tragedy. As a company, we believe that the natural disasters will slow, but will not derail, our turnaround efforts in Japan.”
Hunt reiterated 2011 guidance of $1.60 to $1.63 billion in revenue with earnings per share in the $2.25 to $2.35 range, or $1.92 to $2.02 when including charges related to the Japan Customs decision.
“We estimate the natural disasters will have an annual negative impact on Japan sales of 5%, or approximately $25 million. Although the situation is fluid, we project an impact of about $5 million in the first quarter, $10 million in the second quarter, $7 million in the third quarter and about $3 million in the fourth quarter,” he said.
However, Nu Skin expects overall results will benefit from stronger-than-anticipated revenue growth in South Asia/Pacific and China, as well as healthy growth in South Korea and Europe. The company also anticipates a stronger product launch in the fourth quarter than initially forecast.