Procter & Gamble sales, margin growth disappoint analysts

Procter & Gamble sales, margin growth disappoint analysts

	Published : Tue, 30 Oct 2007 15:21 By : Agencies Print this Story

NEW YORK (Thomson Financial) - Procter & Gamble shares on Tuesday fell following the consumer product giant's forecast for fiscal second-quarter earnings and as some analysts expressed disappointment with the company's first-quarter results.

The Cincinnati-based Dow component said its fiscal first-quarter earnings received a boost from tax and currency benefits.

Citi analyst Wendy Nicholson, in a research note Tuesday, reiterated a hold rating on P&G, calling fiscal first-quarter results a 'lackluster' start to the year.

P&G's first-quarter margin expansion disappointed Nicholson, as operating margins rose 30 basis points, below Citi's forecast for a 50bp increase, although selling, general and administrative expenses (SG&A) fell only 20bp. 'With this higher level of spending, we are somewhat disappointed that core sales growth is not coming in any higher than only 5%,' Nicholson wrote. Sales rose 8% over a year ago to $20.2 billion, matching analyst forecasts, but forex contributed three points to the growth, bringing organic sales growth to 5%.

Nicholson noted that although P&G's first-quarter profit of 92 cents a share beat estimates by 3 cents, two cents of the earnings came from a one-time tax benefit.

Citi sees P&G shares as fully valued, given the recent run-up in the stock.

J.P. Morgan analyst John Faucher also said the underlying results were below expectations and shared many of Nicholson's concerns. In addition, he noted that sales in P&G's beauty business came in at the low end of his expectations, and health care growth missed his forecast.

Faucher attributed the decline in P&G's share price Tuesday to the less-than-stellar results following a strong run in the company's stock.

P&G issued a fiscal-second quarter earnings forecast early Tuesday of 95 to 97 cents a share, bracketing analyst projections of 96 cents a share.

The company expects higher commodity and energy costs to hurt gross margins in the second quarter but sees a recovery in the second half as it benefits from pricing increases, a North America laundry compaction initiative and savings from restructuring.

P&G shares fell 3.6% to $68.26. As of Monday's close of $71.83, the stock has gained 14% over the past 3 months.

Michelle Rama

mr/pc

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