(Corrects analyst rating in third paragraph to “sector perform” from “outperform”)

CHICAGO - Procter & Gamble Co
trimmed its fiscal 2009 outlook and did not offer a 2010 forecast on Thursday at a time when investors are searching for clarity amid the recession, and its shares fell about 2 percent.

The news also pushed down shares of rival Colgate-Palmolive Co , even though it is still comfortable with Wall Street's expectations. Both household product makers posted better-than-expected quarterly profits.

Volumes remain pretty weak and organic sales were probably the lowest that we've seen in a long time, RBC Capital Markets analyst Jason Gere said of P&G, on whose stock he has an sector perform rating. The near-term outlook seemed just a bit more cautious.

Here's a company that used to overdeliver and now you're seeing them kind of underperform relative to the peer group, he added.

P&G posted its first quarterly profit decline in more than seven years, since the first quarter of fiscal 2002.

It said it now expected to earn $4.20 to $4.25 a share in the fiscal year that ends in June, instead of the $4.20 to $4.35 it forecast back in January. It also said organic sales growth for the year, which excludes the impact of currency fluctuations, acquisitions and divestitures, would be 2 percent to 3 percent, instead of 2 percent to 5 percent.

P&G did not give a profit forecast for fiscal 2010, which begins in July.

P&G and Colgate hiked prices and cut costs to help offset weaker demand and the impact of the stronger dollar, which reduces the value of international sales. They are rolling out new products to entice thrifty consumers back to stores.

LOWER EARNINGS AT P&G

P&G, known for products such as Gillette razors and Tide laundry detergent, posted a 4 percent drop in quarterly profit as consumers switched to less-expensive items.

P&G earnings fell to $2.61 billion, or 84 cents per share, in the third quarter ended on March 31 from $2.71 billion, or 82 cents per share, a year earlier, when there were more shares outstanding. Analysts polled by Reuters Estimates had expected a profit of 80 cents a share.

Sales fell 8 percent to $18.42 billion, below the $18.88 billion analysts had forecast, including a 9 percent hit from the U.S. dollar. Volume declined 5 percent as retailers stocked fewer items and organic sales rose 1 percent.

Officials said they expect one more quarter of destocking by retailers, calling it a shorter-term dynamic.

P&G said it was comfortable with the analysts' consensus earnings-per-share estimate of $4.22 a share for the year, with a range of $4.20 to $4.25. P&G expects net sales to fall 2 percent to 4 percent this year, pressured by unfavorable foreign exchange.

For the current fourth quarter, P&G expects sales to drop 8 to 12 percent due largely to currency fluctuations, with organic sales flat to off 3 percent. It expects earnings in the range of 74 to 79 cents a share.

PROFIT UP AT COLGATE

Colgate, known for its namesake toothpaste, reported first-quarter profit of $507.9 million, or 97 cents per share, up from $466.5 million, or 86 cents per share, a year earlier. The results were a penny higher than analysts had expected.

Sales fell 5.5 percent to $3.50 billion, while analysts had forecast $3.57 billion. Unit volume fell 0.5 percent.

Both organic sales and global pricing increased 8 percent, and Chief Executive Ian Cook said that despite the recession Colgate continues to see consumers trading up to its premium products, even in emerging markets. He added Colgate had not seen trade destocking to any significant degree.

Cook said he is comfortable with external profit expectations for both the second quarter and the year.

Analysts expect Colgate to earn $1.05 a share in the second quarter and $4.22 for the year.

Shares of P&G fell 1.9 percent to $49.45 in afternoon New York Stock Exchange trade. Through Wednesday, the stock had fallen 18.4 percent this year.

Colgate stock, which had been down 12.9 percent year to date, was off 2.3 percent at $58.31.

Cook said Colgate had not really seen any impact on its Mexican business from influenza A (H1N1) and the company is keeping its Mexican facilities open. While P&G did not comment about the flu during its call, earlier this week the company imposed a temporary travel ban to Mexico.

(Reporting by Ben Klayman and Jessica Wohl; Editing by Lisa Von Ahn)