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P&G Quarterly Profit Rises, to Carve Off Folgers

Procter & Gambleposted higher quarterly profit on Thursday and said it would split out its Folgers coffee business into an independent company.

Procter and Gamble
Procter and Gamble

The maker of Pampers diapers, Crest toothpaste and a host of other personal care and household products said strength in emerging markets helped lift quarterly sales.

The earnings increase came despite lower operating margin, caused by higher commodity and energy costs. P&G has faced rising costs for resin used in packaging and other raw materials, which it has mitigated with price increases.

"We are working on cost reduction inside the company, we are working on formula optimization in our products in order to try to mitigate the impact of commodities and energy," CFO Clayton Daley told CNBC.

Profit was $3.27 billion, or 98 cents a share, in the fiscal second quarter ended Dec. 31, compared with $2.86 billion, or 84 cents a share, a year earlier.

Analysts' average earnings forecast was 97 cents a share, according to Reuters Estimates.

Sales rose 9 percent to $21.6 billion, helped by the weaker dollar, which boosts the dollar value of overseas sales.

"Organic sales," which exclude the impact of acquisitions, divestitures and foreign exchange, increased 5 percent.

The company saw double-digit increases in unit volume for Duracell batteries, Head & Shoulders shampoo, Pampers diapers, Tide laundry detergent and several other products.

It forecast full-year earnings of $3.46 to $3.50 a share, compared with its previous forecast of $3.46 to $3.49. Analysts' average forecast is $3.49.

Breaking off Folgers

P&G has long been expected to divest Folgers -- whether in a sale or by giving it to shareholders -- in order to focus on faster-growing categories like health and beauty.

P&G said it hopes to split off Folgers, giving shareholders the option of exchanging P&G shares for Folgers shares. It is still determining the structure of the transaction and could do a spinoff instead, in which shareholders would automatically receive Folgers shares.

The company said it plans to maximize the after-tax value of the coffee business and minimize the reduction to P&G earnings caused by the transaction.

P&G shares closed at $65.09 Wednesday on the New York Stock Exchange. The stock is down 11 percent this year, compared with a 6 percent decline for smaller rival Colgate-Palmolive.

"The stock performed very well last fall. I think in the last couple of weeks, some money has shifted back into some of the sectors that have been beaten down, but we really don't worry that much about what the stock does in the short term, we're a lot more concerned about what our stock does over a three- or five-year period of time," Daley said on the recent declines.

- CNBC.com contributed to this report

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