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Procter & Gamble Q2 Profit Up 53% On Folgers Sale; Says Comfortable with FY09 Analysts' Estimate - Update

Friday, consumer goods giant Procter & Gamble Co. (PG: Quote) reported that its second-quarter net earnings jumped 53% from last year, despite a drop in sales, thanks to a gain from the Folgers transaction that was completed during the quarter.

The company's net earnings for the quarter, including discontinued operations, climbed to $5.0 billion or $1.58 per share from $3.27 billion or $0.98 per share in the year-ago period. Net earnings per share for the second quarter of 2008 include a $0.63 gain from the Folgers transaction.

Procter & Gamble sold its Folgers coffee unit to The J.M. Smucker Co. (SJM) for $2.95 billion and the transaction was completed on November 6, 2008. The Folgers business is reported as discontinued operations.

The company's earnings from continuing operations for the quarter declined to $2.96 billion or $0.94 per share from $3.19 billion or $0.96 per share in the comparable quarter a year before due to lower net sales and operating margin. On average, 13 analysts polled by FirstCall/Thomson Financial expected the company to earn $1.58 per share. Analysts' estimates typically exclude one-time items.

Net sales for the quarter dropped 3% to $20.37 billion from $21.04 billion in the year-earlier period due to unfavorable foreign exchange and lower volume. However, organic sales, which exclude the impacts of acquisitions, divestitures and foreign exchange, were up 2% for the recent second quarter. Wall Street analysts had a consensus revenue estimate of $20.64 billion.

Higher commodity costs and Folgers-related restructuring charges dented the company's operating margin for the quarter to 20.9% from 21.8% reported in the year-ago period.

The company operates in three global business units -- Beauty, Health and Well-Being, and Household Care.

The company's Beauty global business unit includes two segments - Beauty and Grooming. The Beauty segment's earnings from continuing operations for the quarter declined 10% to $799 million, while sales for the quarter were $4.93 billion, down 4% from last year.

The Grooming segment reported earnings from continuing operations of $416 million for the quarter, reflecting a decline of 3% over last year. The segment's sales for the quarter totaled $2.01 billion, which was also down by 7%.

Health and Well-Being global business unit includes Health Care, and Snacks and Pet care segments. Earnings from continuing operations of the Health Care segment declined 10% to $647 million for the second quarter of 2008, while sales dropped 6% to $3.53 billion, compared to last year.

Snacks and Pet care segment reported earnings from continuing operations of $63 million for the quarter, representing a decline of 6% from last year. The segment's sales declined a modest 1% $791 million.

Household Care global business unit includes Fabric Care and Home Care, and Baby Care and Family Care segments. Fabric Care and Home Care segment's earnings from continuing operations for the quarter plunged 25% to $658 million, while sales declined 4% to $5.79 billion from the year-ago quarter.

Baby Care and Family Care segment reported earnings from continuing operations of $418 million for the quarter, unchanged from last year, while sales grew 3% to $3.47 billion, compared to prior-year quarter.

For the six month period ended December 31, 2008, Procter & Gamble's net earnings climbed to $8.35 billion or $2.61 per share from $6.35 billion or $1.90 per share in the year-ago period.

The company's net earnings from continuing operations for six months increased to $6.24 billion or $1.95 per share from $6.19 billion or $1.85 per share in the year-ago period.

Net sales for the six-month period rose 3% to $41.95 billion from $40.84 billion in the year-ago period.

Looking ahead to the third quarter, the company expects earnings per share to be in the range of $0.78 to $0.86, including incremental Folgers-related restructuring charges. FirstCall/Thomson Financial analysts have earnings estimates pegged at $0.85 per share.

For fiscal year 2009, Procter & Gamble stated that it is comfortable with analysts' current consensus earnings per share estimate of $4.29. Accordingly, the company revised its fiscal 2009 earnings guidance to $4.20 - $4.35 per share from its prior outlook of $4.28 - $4.38 per share.

Commenting on the results, Chairman of the Board and CEO A.G. Lafley said, "As expected, this was a particularly challenging quarter. We expect the environment will remain difficult and highly volatile - at least in the near term. We are focused on the fundamentals that are critical to success in our business."

PG has been trading in the range of $53.77-$73.57 in the last twelve months. The stock closed Thursday's trade at $58.22.

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by RTT Staff Writer

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