P&G shows turnaround taking hold with results, outlook

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By Jessica Wohl | January 26, 2013 1:28 AM EST

Procter & Gamble Co's quarterly profit soared past expectations as the world's largest household products maker used higher prices and new products to drive sales growth, the strongest indication yet that turnaround efforts are paying off.

The results, along with improved forecasts for the fiscal year, follow months of criticism from analysts and most notably from activist investor William Ackman, who blamed P&G's top brass, led by Chairman and Chief Executive Bob McDonald, for earlier missteps.

Shares of P&G, the maker of Pampers diapers and Gillette razors and a component of the Dow Jones industrial average <.DJI>, jumped to $71.84 (45.44 pounds) in premarket trading from Thursday's close of $70.42.

The results, with profit and sales ahead of analysts' expectations, come after months of P&G trying to reignite growth in sluggish markets such as the United States while also expanding in emerging markets, where it typically sells lower-priced merchandise.

Back in April 2012, analysts took McDonald to task on a tense conference call after P&G cut its outlook. That summer, Ackman's Pershing Square Capital Management bought the company's shares and began pushing for more change.

Profit has exceeded analysts' expectations every quarter since, helped by new products such as Tide Pods single-dose laundry detergent.

Still, P&G's growth lags that of peers such as Unilever .

P&G's organic sales, which strip out the impact of divestitures and foreign exchange, grew 3 percent in the latest quarter, while Unilever posted 6.9 percent sales growth on Wednesday.

While P&G's "absolute performance still trails peers, the sequential improvement in results seems apparent," said JP Morgan analyst John Faucher.

Organic volume rose in baby and family care; fabric and home care; and in health care; but was flat in beauty and grooming.

"We believe P&G still has work to do, including in beauty and grooming where volumes were flat," said Stifel Nicolaus analyst Mark Astrachan.

Astrachan said that while the results were "solid and encouraging," particularly the sales growth, P&G continues to lag in categories with strong growth trends, such as beauty.

Meanwhile, rival Kimberly-Clark Corp also posted a better-than-expected profit on Friday.

ANSWERING ACKMAN

P&G has been under pressure to improve its performance since Ackman bought a stake of about 1 percent, making his Pershing Square the company's 8th largest shareholder. Ackman has said many of the company's problems were due to top management but said in the fall he understood the board wanted to give McDonald more time to repair years of damage.

Even before Ackman took a stake, P&G was going through a $10 billion restructuring and other changes. It cut 5,500 non-manufacturing jobs through December, near its goal of reducing 5,700 positions by the end of June, Chief Financial Officer Jon Moeller said on Friday.

Competitors Kimberly-Clark Corp and Colgate-Palmolive Co are also trimming their ranks to contend with weak economies in the United States and Western Europe.

P&G earned $4.06 billion, or $1.39 per share, in the fiscal second quarter ended in December, up from $1.69 billion, or 57 cents per share, a year earlier.

Stripping out unusual items such as restructuring charges and acquisitions, P&G earned $1.22 per share. That topped the company's own forecast of $1.07 to $1.13 per share and analysts' average target of $1.11, according to Thomson Reuters I/B/E/S.

Net sales rose 2 percent to $22.18 billion, topping analysts' forecast of $21.91 billion.

P&G expects fiscal 2013 core earnings of $3.97 to $4.07 per share, up from an earlier forecast of $3.80 to $4. The fiscal year ends in June. Analyst estimates were at the bottom of that new range.

It expects organic sales to rise 3 percent to 4 percent this year, narrowing a prior forecast of 2 percent to 4 percent growth.

P&G also said it now plans to repurchase $5 billion to $6 billion in stock after calling for $4 billion to $6 billion in buybacks.

For the current quarter, P&G forecast core earnings per share of 91 cents to 97 cents, with sales up 3 percent to 4 percent. Analysts' average forecast was 95 cents per share.

(Reporting by Jessica Wohl in Chicago; Editing by Jeffrey Benkoe and Nick Zieminski)

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