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Emerging markets lift P&G second-quarter sales, crimp gross margin

Friday, 24 Jan 2014 | 9:18 AM ET
Procter & Gamble Co. Crest brand toothpaste sits on display in a supermarket in Princeton, Illinois, on Wednesday, Oct. 23, 2013.
Daniel Acker | Bloomberg | Getty Images
Procter & Gamble Co. Crest brand toothpaste sits on display in a supermarket in Princeton, Illinois, on Wednesday, Oct. 23, 2013.

Procter & Gamble, the world's largest household products maker, reported a dip in quarterly profit on Friday as its push in emerging markets led to a lower gross profit margin.

Chief Financial Officer Jon Moeller told reporters on a conference call that sales in emerging markets had risen 8 percent during the second quarter, easily outpacing developed markets, where sales barely edged up.

But P&G's gross margin is lower in those markets as the company establishes itself. Still, the costs are worth paying, said one investor.

"The emerging markets are definitely the future for P&G," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel, which manages about $11 billion and has long owned P&G and Kimberly-Clark shares.

(Read more: J&J profit beats forecasts as drug sales soar)

P&G's Moeller said its market shares in both emerging and developed sectors had held steady.

Earlier this weak, rival Unilever said it would stick to its emerging markets growth strategy as a fourth-quarter recovery in sales there boosted 2013 results.

P&G's gross profit margin slipped 0.9 percentage points, in part because of stagnant sales of its beauty products, which have higher margins. The margins were helped by lower manufacturing costs.

P&G, the maker of Pampers diapers and Tide detergent, left its 2014 forecasts unchanged. It still expects organic sales, which strip out the impact of currency changes as well as acquisitions and divestitures, to rise 3 percent to 4 percent, and core earnings to rise 5 percent to 7 percent.

(Read more: McDonald's global sales decline)

"It is reassuring to see it has confidence it can hit the numbers, despite the weak categories," J.P. Morgan analyst John Faucher wrote in a note.

The company's beauty division continued to struggle during the quarter, with organic sales unchanged as skin care results slipped. P&G's health care segment reported the fastest growth, rising 5 percent.

The company earned $3.43 billion, or $1.18 per share, in its fiscal second quarter ended December 31, down from $4.06 billion, or $1.39 per share, a year earlier. Core earnings per share, excluding restructuring charges, fell 1 percent to $1.21. Analysts expected $1.20 a share.

Sales rose 0.5 percent to $22.28 billion, in line with the average Wall Street estimate, according to Thomson Reuters I/B/E/S. Organic sales rose 3 percent.

Procter shares rose 0.7 percent to $78.79 in premarket trading. (Click here to get the latest quotes.)

Rival consumer goods company Kimberley Clark reported that organic sales rose 5 percent, and forecast they would rise 3 percent to 5 percent in 2014.

By Reuters

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