CHICAGO (Reuters) - Procter & Gamble Co (PG.N) said on Thursday it was on track to meet its earnings forecasts in the current quarter and fiscal year, although sales will be weaker than expected this quarter because of the recession.
The world’s largest consumer products maker also said it may get out of the pharmaceutical business as it focuses on products such as toothpaste and feminine care items.
P&G shares rebounded after falling 2.7 percent.
While other industries such as auto and apparel retailers felt a big hit from consumers cutting back during the recession, “the picture isn’t nearly as bleak in fast-moving consumer goods,” Chairman and Chief Executive A.G. Lafley told analysts at a meeting in New York.
P&G is recession-resistant, but not recession-proof, he said. Lafley expects to see early signs of economic recovery in the next year.
P&G said commodity costs would still rise this year, but not as much as it thought a few weeks ago. However, it expects the stronger dollar to hurt sales more than previously expected. A stronger dollar lessens the dollar value of sales outside the United States.
Lafley also said P&G would stop making new investments in pharmaceuticals, consider divesting its healthcare brands and focus its health business on over-the-counter healthcare products such as Pepto Bismol and Prilosec. P&G’s prescription drugs include Actonel and Enablex.
Jon Moeller, who is set to become chief financial officer on January 1, said private label products are growing “modestly” in the United States and P&G has seen consumers trade down to less expensive branded goods. For example, a shopper who used to buy P&G’s high-end Pampers diapers may now buy the company’s less-expensive Luvs brand, or someone who bought pricey Tide laundry detergent may switch to P&G’s cheaper Gain brand.
To keep consumers interested, P&G has been promoting the value of its products, including an ad campaign that tells men that its Gillette Fusion razor costs as little as $1 per week to use.
Consumer value is “always important and absolutely critical in times like these,” Lafley told the crowd of about 250 people at the meeting.
While P&G does not anticipate making significant price moves now, Lafley said it would continue to raise prices when it needs to recover higher costs.
P&G said retailers, distributors and consumers have lowered inventories in developed and developing markets. Consumers have begun to use up what they have in their pantries rather than stock up on items such as shampoo and detergent as they try to curb spending.
P&G did not expect inventory levels to be adjusted so quickly or dramatically, Moeller said.
The company said second-quarter organic sales growth, which excludes the impact of acquisitions, divestitures and foreign exchange, will fall short of its forecast range of 4 percent to 6 percent. Full-year organic sales growth is still expected to be in the range of 4 percent to 6 percent.
Morningstar analyst Lauren DeSantowas not “terribly surprised” by the lowered revenue outlook for the second quarter.
“P&G is a cost-cutting story right now, but I‘m encouraged that they expect to meet their top-line target for the year,” she said.
Other plans discussed on Thursday included a focus on sustainable products, such as larger rolls of toilet paper, and efforts to cut transportation and media costs.
P&G still plans to earn $1.58 to $1.63 per share for the fiscal second quarter that ends this month and $4.28 to $4.38 per share in fiscal 2009, which ends in June.
Analysts, on average, expect P&G to earn $1.56 this quarter and $4.28 this year, according to Reuters Estimates.
The company now expects an additional $2 billion in commodity costs in fiscal 2009, down from a forecast of $2.7 billion it gave at the end of October. It originally expected $3 billion in such costs this year. While the forecast has come down, it will still be the highest cost increases P&G has faced, up from a $1.5 billion rise in fiscal 2008.
P&G now expects foreign exchange to cut sales by about 5 percent, both in the current quarter and the fiscal year, a deeper cut than the 1 percent to 2 percent hit it expected.
Changes in areas such as production helped P&G cut over $600 million in costs over the last five years. The company could save another $600 million over the next five years by making moves such as using trains more often to transport goods in Western Europe, said Chief Operating Officer Bob McDonald.
P&G shares were up 40 cents at $59.52 in midday trading. P&G shares, a component of the Dow Jones industrial average, fell nearly 19.5 percent from the beginning of the year through Wednesday. The shares rose about 14.2 percent in 2007.
Additional reporting by Christopher Kaufman and Aarthi Sivaraman in New York; Editing by Derek Caney and Andre Grenon