Sales and Profits Rise at Procter & Gamble, Colgate-Palmolive (PG, CL)

Procter & Gamble (PG) reported a 6% gain to $21.03 billion in sales for its second fiscal quarter. Diluted net EPS reached $1.49, lower than the year-ago EPS of $1.58 but higher than average estimates of $1.42. Analysts were expecting sales of $21.07 billion, so PG missed that by a bit.

Colgate-Palmolive (CL) also beat EPS estimates of $1.18, hitting $1.21 with revenue right on estimates of $4.08 billion. Both Procter and Colgate reported higher volume. Foreign exchange rates on the weaker U.S. dollar also contributed 2% to P&G’s organic growth and 5% to Colgate’s sales improvement.

Both companies increased quarterly selling, general and administrative expenses by about 12%. Most of that was spent on advertising, and the push appears to have paid off.

That is the strength of brands, especially in the consumer products market. Procter and Colgate both own brands that are household names, not only in the U.S., but everywhere in the world. People have used these brands for years, and even if they change brands momentarily due to a poor economy, given the right incentives they always come back.

So, does this mean that a jump in sales of Colgate toothpaste or Charmin toilet paper signals a warm feeling about economic recovery among the middle class?

P&G lowered prices on a significant portion of its products in a drive to boost revenue. Colgate raised prices by about 1% in Latin America, where it does about 30% of its business. The increase was attributed to exchange rates, and it didn’t slow down Latin American consumers who purchased 23% more of Colgate’s products and generated a 27% increase in operating profit.

Looking just at the U.S. middle class, P&G’s actions point toward a continuing concern over the slumping economy. Consumers are still looking for bargains, and P&G offered some. That the company was able to steal sales for no-name or off-brands should be no surprise.

Colgate actually lost 1.5% on North American sales after coupons and other incentives were added in. More evidence that U.S. consumers are still looking for value.

When P&G and Colgate are able to raise prices and boost sales at the same time, then the US middle class will have recovered. That time is still some ways off.

The last quarter of 2009 was a good one for consumer brands, but it came at a cost. Both P&G and Colgate can afford to market heavily with gross margins above 50% and operating margins around 22%. Marketing savvy and money will keep these consumer products giants going for the coming year.

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