Makers of soap, diapers and other household products are spending much more for fuel and raw materials than expected, which means more price increases are on the way for consumers.
Procter & Gamble Co
Smaller rival Colgate-Palmolive Co
Consumer goods makers are paying more for transport and a variety of materials, from pulp used to make tissues to resin used to make detergent bottles.
P&G, the world's largest household products maker, expects its costs to soar about $1.8 billion this fiscal year, or about triple what it planned heading into the year, Chief Financial Officer Jon Moeller said. It is trimming operational costs before it resorts to price increases.
P&G and its rivals have started to roll out a variety of price increases on products ranging from diapers to detergent, adding to pressure on shoppers, especially in markets such as the United States, where growth was sluggish.
The companies are banking on increasing demand in countries such as China and India as growth in developed markets such as the United States and Western Europe has stagnated.
We do believe economies are improving around the world, P&G CEO Bob McDonald said. The rate of improvement in developed markets is obviously slower than we had originally forecasted.
Higher materials costs are spreading across the packaged goods industry. Soft-drink and snack food maker PepsiCo Inc
P&G's shares fell 1.4 percent to $63.13, while Colgate slipped 1.2 percent and PepsiCo was up 0.5 percent. Unilever's shares fell 3 percent.
P&G is bringing out new products, such as Tide Pods single-dose laundry detergent, in an effort to win over shoppers with fresh goods rather than just raising prices on items already on the market.
McDonald also said that P&G needs to work on improving its Pantene hair care line, whose updated products failed to win over women in North America.
Stifel Nicolaus analyst Mark Astrachan said that he believes P&G is best positioned to outperform in the current environment given its innovation pipeline and deep pockets.
The new Tide product, which includes a stain-fighting ingredient, is priced in line with Tide and could ultimately capture up to 30 percent of the North American detergent market, McDonald said.
P&G said it now expected fiscal-year core earnings, which exclude some items, of $3.91 to $3.96 per share. The high end of that forecast previously was $4.01 per share.
(Reporting by Jessica Wohl and Brad Dorfman in Chicago and David Jones in London; Editing by Lisa Von Ahn, Dave Zimmerman)