Procter & Gamble Co and Colgate-Palmolive Co boosted sales of their brand name products in the last few months, convincing consumers to spend a little more with a bigger investment in advertising.
A tentative recovery in consumer spending helped both consumer goods leaders post better-than-expected results. Profit at P&G, the maker of Tide laundry detergent and Pampers diapers, fell less than anticipated. A higher profit at toothpaste and dish-soap maker Colgate was even stronger than analysts expected.
But the companies stood by their 2010 profit forecasts as they digest new issues such as the impact from the devaluation of Venezuela's bolivar.
It's encouraging, there's no question, JP Morgan analyst John Faucher said of the results from P&G and Colgate.
However, as the raw material environment normalizes after having easy comparisons, they're not going to put up this kind of upside without some acceleration in top line growth going forward, he said.
The companies must also prepare to respond to competitors across the sector increasing their spending on advertising, promotions and other plans.
P&G did say that sales should rise more than it previously anticipated this year. It also said moving to the lower exchange rate in Venezuela would trim reported sales by less than 2 percent and have no impact on its organic sales growth rate.
Shares of P&G rose 19 cents to $61 in pre-market trading. There were no early trades in shares of Colgate. Colgate shares rose nearly 20 percent last year, while shares of P&G fell almost 2 percent. During 2009, P&G's longtime chief executive, A.G. Lafley, handed over the reins to Bob McDonald.
P&G and Colgate have felt pressure since late 2007 as consumers bought less expensive products to save money. But Colgate's portfolio has been more resistant to such trends since most of its products, such as toothpaste and soap, are less discretionary.
P&G and Colgate are not the only ones stepping up their advertising and promotional spending as a tentative economic recovery takes hold.
Energizer Holdings Inc , Estee Lauder Cos Inc , Elizabeth Arden Inc are among the other personal care product makers beefing up such efforts, with each one hopeful that consumers will try out their new products as they loosen their purse strings.
Estee Lauder posted a sharp rise in quarterly profit on Thursday, as women once again started buying cosmetics. Late Wednesday, Arden's higher profit also topped expectations.
BY THE NUMBERS
P&G earned $4.66 billion, or $1.49 per share, in the fiscal second quarter ended December 31, down from $5 billion, or $1.58 per share, a year earlier. Analysts, on average, expected it to earn $1.42 per share, according to Thomson Reuters I/B/E/S.
Sales rose 6.4 percent to $21.03 billion, falling short of analysts' forecast $21.07 billion. Organic sales, which exclude the impact of currency fluctuations, acquisitions and divestitures, rose 5 percent, as did the volume of goods sold.
P&G still expects to earn $4.02 to $4.12 per share in the current fiscal year, which ends in June. It now expects organic sales to rise 3 to 5 percent this year, up from its prior forecast of 2 to 4 percent.
For the current fiscal third quarter, P&G expects to earn 77 cents to 82 cents per share, missing analysts' target of 85 cents. P&G said organic sales should rise 4 to 6 percent this quarter.
Colgate earned $631 million, or $1.21 per share, up from $497 million, or 94 cents per share, a year earlier. Sales rose 11.4 percent to $4.08 billion, while the volume of goods sold rose 3 percent.
Analysts, on average, expected a profit of $1.18 per share on $4.08 billion in sales.
Colgate said it still expects to post double-digit earnings-per-share growth in 2010.
(Reporting by Jessica Wohl; Editing by Michele Gershberg, Dave Zimmerman)