(Reuters) - Procter & Gamble Co’s (PG.N) profit rose more than expected, indicating that the world’s largest household products company is making progress in cutting costs and giving Chief Executive Bob McDonald a little relief after months of pressure.
Shares of P&G, the maker of Tide detergent and Gillette razors, rose to their highest level in four years.
Meanwhile, shares of rival Colgate-Palmolive Co (CL.N) slid as much as 3.3 percent after it announced plans to cut jobs as it strives to operate more nimbly as economies slow in many countries. Colgate’s quarterly profit matched expectations.
P&G is cutting $10 billion of costs and focusing on key markets, products and countries. The company’s goals as well as McDonald, who is also chairman, have been under intense scrutiny since activist investor William Ackman bought shares this summer.
“They cleared a low hurdle,” said Morningstar analyst Erin Lash. “The fact that they did report solid results is a plus, but I don’t know if the pressure is necessarily off.”
P&G had given a quarterly forecast in August that was below Wall Street’s view at the time, leading analysts to lower their expectations. P&G ultimately beat the initial analyst expectations, helped by sales that met the high end of its forecast and some relief in commodity costs.
Shares of P&G rose as much as 4 percent to $70.83 on Thursday, their highest level since October 2008. The shares were up 3 percent at $70.11 by midafternoon. Colgate’s shares were down 1.9 percent at $104.49 in the afternoon, off an earlier low at $103.06.
“It wouldn’t surprise me if we’re seeing some people saying it is time to sell some Colgate, buy some Procter, given Colgate’s outperformance year to date,” said JP Morgan analyst John Faucher, who has a “neutral” rating on Colgate and an “overweight” rating on P&G.
Several consumer goods makers are trimming jobs, including P&G, as concerned consumers hold off on some purchases and growth slows in major markets such as China.
P&G is on track to cut 4,200 jobs by the end of October on its way to eliminating 5,700 jobs by the end of its fiscal year. Colgate’s plans, including moving away from single-country units toward regional hubs, should lead the toothpaste maker to trim about 2,300 jobs, or roughly 6 percent of its workforce, by the end of 2016.
On Wednesday, Kimberly-Clark Corp (KMB.N) said it would eliminate 1,300 to 1,500 jobs as it leaves some low-margin businesses in Europe, and Energizer Holdings Inc (ENR.N) said in September that it plans to cut an unspecified number of jobs.
Colgate’s shares had risen 15 percent this year through Wednesday, while P&G shares were up less than 1 percent.
P&G did not raise its key profit forecast for the fiscal year that began in September, in part because it plans to ramp up marketing support behind new products being introduced later in the year, and because it has to spend more to obtain an absorbent material for Pampers diapers, its largest brand, following a plant explosion in Japan.
P&G earned $1.06 per share in the fiscal first quarter on a “core” basis, which excludes charges, up from $1.01 per share a year earlier. Analysts, on average, expected it to earn 96 cents per share, according to Thomson Reuters I/B/E/S. Back in August, before P&G forecast earnings per share of 91 to 97 cents, analysts’ average forecast had been $1.03.
Ackman, whose Pershing Square Capital Management is P&G’s 10th-largest shareholder, has publicly blamed P&G’s top brass for high costs and declining revenue while saying that he understands the board wants to give McDonald time to repair years of damage. Ackman could not be reached for comment on Thursday.
P&G is putting a fresh focus on productivity, including adding a new global officer of productivity and organization transformation who will report to McDonald, as well as creating a productivity council of senior managers.
P&G’s net sales in the quarter fell 4 percent to $20.74 billion, below analysts’ target of $20.78 billion. Organic sales, which strip out the impact of acquisitions, divestitures and foreign exchange, rose 2 percent.
P&G is still seeing some pressure. Its sales grew 7 percent in China, but that was below China’s household-products market growth of 11 percent. China is P&G’s second-largest market in terms of sales and profit.
P&G still expects to post core earnings per share of $3.80 to $4 this fiscal year. Analysts’ average forecast for the year is $3.91 per share.
For the current second quarter, P&G forecast core earnings of $1.07 to $1.13 per share, with organic sales up 1 to 3 percent. Analysts’ forecast was $1.10.
Colgate, meanwhile, earned $1.38 per share, matching analysts’ forecasts, while sales fell 1 percent to $4.33 billion.
P&G is dealing with the explosion in Japan of a Nippon Shokubai Co (4114.T) plant that supplies a key material for Pampers diapers. Pampers is the company’s largest single brand, accounting for more than $10 billion in annual sales.
Nippon Shokubai is one of the world’s biggest makers of acrylic acid, the main ingredient of a resin called SAP, which is used in diapers.
P&G has found other sources of the material and while any impact to consumers should be “minor,” it has to spend more obtain the supplies it needs, said Chief Financial Officer Jon Moeller.
Kimberly-Clark, which makes Huggies diapers, said on Wednesday it was not affected by the explosion since Nippon Shokubai was not its supplier.
Reporting by Jessica Wohl in Chicago; editing by Jeffrey Benkoe, Maureen Bavdek and Matthew Lewis