Food, consumer goods makers results mixed amid higher costs

Makers of household consumer and food products reported mixed results amid the slumping economy Wednesday as they raised prices on everything from hot dogs to toothpaste to try to offset soaring energy and ingredient costs.

Procter & Gamble Co., the maker of Pampers diapers and Gillette razors, said that higher retail prices, cost controls and strong growth in emerging markets helped lift its fiscal third-quarter profit 8 percent. P&G also raised its full-year outlook, sending its shares up 3 percent.

A.G. Lafley, the company's chairman and chief executive, said it remains optimistic about sustaining its growth because of daily uses for its many household brands such as Charmin toilet paper, Crest toothpaste and Tide detergent.

"Virtually everything we sell is not discretionary; it's a staple," Lafley said in a conference call. "You have to go to the bathroom. You have to get up in the morning and brush your teeth. You've got to shower. You've got to shave ... you've got to wash your clothes."

But rival Colgate-Palmolive Co., whose products include its namesake toothpaste and dish soap, said first-quarter earnings fell 4 percent as the company took restructuring charges and a higher provision for income taxes. Colgate said rising materials costs were offset by raising prices, but that margins would be pressured as the cost of raw materials kept rising.

Analysts questioned Colgate-Palmolive executives on whether they had been slow to lift prices and anticipate the impact of rising costs for agricultural commodities. The company, whose shares slid 4.9 percent, or $4.88, to $70.90, will raise Colgate toothpaste prices by 9 percent this summer.

"If gross margin pressures persist, one leg of the Colgate growth stool falls off, which could start to impact growth as advertising spending is reduced," Deutsche Bank analyst Bill Schmitz Jr. said in a note to clients.

The companies are likely to face higher costs and tighter household budgets in the coming months. SunTrust Robinson Humphrey analyst William Chappell said in a client note that P&G's 10 percent earnings per share growth target for its 2009 fiscal year will be challenged by "both the spike in commodity costs and slower consumer spending."

On the kitchen table side of household businesses, Kellogg Co. saw its first-quarter profit dip 2 percent, despite recent price increases by the maker of its namesake cereal, Pop-Tarts toaster pastries and Eggo frozen waffles.

Kellogg raised wholesale prices an average of 3.2 percent across much of its product portfolio, said spokeswoman Kris Charles. Prices went up for snacks at the end of December and for cereal and frozen products in late January.

At Kraft Foods Inc., the nation's largest food and beverage maker, first-quarter earnings dropped 13 percent _ also amid higher costs for ingredients. The maker of Oscar Mayer hot dogs, Maxwell House coffee and Oreo cookies benefited from nearly across-the-board price increases.

Kraft's profit decline also came because earnings in the same period last year were boosted by a one-time benefit related to the company's spinoff from the Altria Group Inc.

P&G raised prices by 6 percent or more earlier this year on products including Iams dog food, Cascade dishwasher detergent and Zest bar soap. The company said Wednesday it expects costs to keep climbing, has increased spending on marketing, and has more price hikes coming this summer _ from 4.5 percent on Tampax feminine products to 11 percent for Oral-B power toothbrushes.

The company cited continued double-digit volume growth in developing markets and growth among key brands such as Pampers, Gillette Fusion razors and Head & Shoulders shampoo.

P&G projected that Fusion, the five-blade razor system introduced two years ago, will top $1 billion in sales for the fiscal year, making it P&G's 24th billion-dollar brand and the fastest to reach that level.

Pampers, meanwhile, had growth rates in the high-teen percentages in emerging markets such as China, Russia and Poland, P&G said. Pantene shampoo had strong growth in China and Brazil, but was slow in U.S. markets, as were some other beauty product areas such as higher-end, "prestige" product sales in department stores.

Colgate-Palmolive reported solid growth in Latin American markets, and said its toothpaste business was strong in China, India and Russia.

President and Chief Executive Ian Cook said growth was balanced between developed and developing countries. He said Colgate-Palmolive continues to expect double-digit earnings per share growth in 2008.

P&G shares rose 1.8 percent, or $1.20 to $67.10. Kellogg was down 73 cents, or 1.4 percent, to $51.25, while Kraft was up 83 cents, or 2.7 percent, to $31.60.

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AP Business Writers Dave Carpenter in Chicago, Kristen Lee in New York and James Prichard in Grand Rapids, Mich., and AP investigative researcher Randy Herschaft in New York contributed to this report.

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On the Net:

http://www.pg.com

http://www.colgate.com

http://www.kelloggcompany.com

http://www.kraft.com