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P&G and Colgate Top Views, But Leave Investors Unimpressed

Procter & Gamble and its smaller rival Colgate-Palmolive posted slightly better-than-expected quarterly profits on Tuesday and signaled that their businesses look good for the rest of 2007, but the results failed to excite Wall Street.

P&G shares moved lower Monday; Colgate stock edged up only slightly after trading lower most of the morning.

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P&G, best known for products such as Tide detergent and Pampers diapers, posted a 12% rise in fiscal second-quarter profit. Earnings of 84 cents a share beat a Thomson Financial average forecast of 83 cents a share.

Colgate, leading products of which include its namesake toothpaste, posted an 11% rise in fourth-quarter profit. Excluding certain special items, it earned 78 cents a share, topping analysts' average forecast by a penny.

"Although we believe this was a strong quarter for (Colgate), we think the stock will trade down due to gross margin miss and in sympathy to Procter," said JP Morgan analyst John Faucher, who rates Colgate "overweight" and P&G "neutral."

Colgate said quarterly gross profit margin grew 60 basis points to 56.6%, excluding restructuring charges. But Faucher had expected 56.9% gross margin, and Morgan Stanley analyst Bill Pecoriello also said that the gross margin expansion fell short of his expectations.

Faucher said that P&G's 5% growth in "organic" sales, which exclude mergers and the impact of foreign exchange, might disappoint the market. P&G had forecast 4% to 7% growth, while Faucher had expected 6% growth and said he thinks the consensus was at 7% to 8%.

Growth Goals

Colgate and P&G are currently going head-to-head in the toothpaste aisle, with Colgate hawking its Colgate Total toothpaste with ads featuring Brooke Shields to compete against
one of P&G's new products, Crest Pro-Health toothpaste.

P&G Chief Executive A.G. Lafley said on a conference call that early consumer reaction to Pro-Health is positive and that he expects both Crest and Colgate to continue to grow.

"I think this is the first chapter in a multi-chapter book and we're going to be talking about Pro-Health for a long time," Lafley said.

Colgate benefited from its focus on profitable areas such as oral care, personal care and pet food. President and Chief Operating Officer Ian Cook, who is set to become CEO of the New
York-based company later this year, said the "excellent" trends should continue throughout 2007.

Colgate said its business in North America should post "good growth" in operating profit this quarter and continue positively throughout the year.

P&G raised its sales and profit outlook for the fiscal year based on the quarter's results and current expectations, but its profit forecasts suggest the company may fall short of analysts' lofty expectations.

P&G expects to earn $2.99 a share to $3.03 a share this year, including dilution from the acquisition of Gillette. It now expects dilution to be toward the lower end of its previous forecast of 12 to 18 cents a share.

Analysts, on average, had expected P&G to earn $3.03 a share this year.

For its fiscal third quarter, which ends in March, P&G expects to earn 72 to 74 cents a share, while analysts were expecting 74 cents.

P&G expects organic sales, or sales excluding acquisitions and the impact of foreign exchange, to rise 5 to 6% this year, versus its prior forecast of 4 to 6%. Total sales should rise 10 to 12%, it said.

P&G forecast third-quarter organic sales growth of 5 to 7% and total sales growth of 7 to 9%.

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