Procter & Gamble's net income falls 2 pct

October 27, 2011 - 7:45 AM
Earns Procter and Gamble

This Oct. 11, 2011 photo, shows Procter & Gamble chief executive Robert A. McDonald speaking at the companies annual shareholders meeting, in Cincinnati. Procter & Gamble Co.'s net income fell 2 percent in the fiscal first quarter Thursday, Oct. 27, 2011, a sign that the consumer-goods giant is battling higher costs. (AP Photo/Al Behrman)

CINCINNATI (AP) — Procter & Gamble Co.'s net income fell 2 percent in the fiscal first quarter as revenue growth was offset by the consumer-goods giant's higher costs.

P&G, maker of Tide detergent and Pampers diapers, said net income fell to $3.02 billion from $3.08 billion. Per-share earnings were $1.03 per share, in line with analysts' estimates, and up from $1.02 per share in the same period a year ago.

The decline came despite a revenue increase of 9 percent to $21.9 billion from $20.12 billion. That beat analysts' estimates for revenue of $21.5 billion. P&G said it expects revenue to increase 3 to 6 percent for the current fiscal year, which runs through June, due in part to higher prices.

P&G serves as a bellwether for the consumer-products industry and the economy as a whole because its products, ranging from Gillette razors to Olay skin cream, can be found in homes across the world. Like many companies, it's been raising prices and trimming some of its own expenses to battle higher costs for raw materials. But it has to be careful not to raise prices too high and risk driving away customers who already are saddled down by stubbornly high unemployment, stock market turmoil and an overall weak economy.

The company's operating margin fell to 19.8 percent from 22.4 percent, which the company blamed on a climb in commodity costs of 3.4 percentage points.

Market share fell in North America and Western Europe. P&G said that was because it had already raised prices on some products, and rival companies were only in the process of raising their own prices. However, executives did mention a few instances where rival companies hadn't followed suit: For example, they said, Unilever continues to run discounts on its hair products and laundry products in the U.K.

The Cincinnati-based company has raised prices on some products, including Pampers diapers, Charmin toilet paper and Cascade dish detergent. But as the recession and its aftermath shrink the middle class, P&G has developed a strategy of going after customers at both the high end and the low end. For example, higher-end customers might buy the more-expensive Tide Total Care, and lower-end customers might buy Ariel brand laundry detergent. The company has also introduced "Basic" versions of some products to go after customers who were trading down to store brands.

"An unemployed consumer continues to look for good value and continues on occasion to trade down. But on the other hand you've got people on the other end of the economic portfolio who continue to trade up," CEO Bob McDonald said on a call with reporters.

P&G also has been expanding in emerging market countries in Africa, the Middle East and elsewhere, as a way to make up for recession-weary U.S. customers reining in spending. Like most companies, P&G usually sells lower-priced items with lower profit margins in those regions, although they hope to move consumers into buying higher-priced products.

P&G and other U.S. companies that sell goods overseas have benefited this year from favorable foreign exchange rates. That means that when the dollar is weak, revenue made overseas translates into more dollars at headquarters.

P&G said that favorable currency translations increased revenue by 5 percent this quarter. But it also said it expects that benefit to slow down as the dollar shows signs of strengthening, and the currency translation is expected to be neutral to revenue growth this fiscal year.

"This happens pretty much every fiscal year. It's just more of the same in the volatile environment that we live in," said chief financial officer Jon Moeller.