Procter & Gamble's higher material costs and write-downs associated with its appliance business weighed heavily on the company's bottom line in the second quarter of fiscal 2012.

Earnings for the three months ended Dec. 31 plummeted 49% to $1.69 billion, the company reported in a Jan. 27 earnings call.

In a same-day release, the Cincinnati-based marketer of Crest, Gillette and Pantene noted that it took a non-cash charge of $1.5 billion after tax to write down the value of its appliances unit, which includes electric shavers.

“The impairments were primarily driven by the prolonged deterioration of the macroeconomic environment, the more discretionary nature of the products and increasing levels of competitive activity,” the firm said.

Rising commodity costs also continue to plague the firm. “We have seen prices soften for some commodities like pulp and natural gas, but these benefits have been largely offset by increases in other materials, such as surfactants, alcohols and other chemicals and direct costs such as diesel fuel,” P&G Chief Financial Officer Jon Moeller told analysts.

The firm reported a $1.8 billion increase in commodity costs in fiscal 2011, and a $700 million increase in commodity costs in its fiscal 2012 first quarter Also see "P&G To Hike Prices At Least 3%, Expects Others To Follow" - HBW Insight, 31 October, 2011..

However, P&G expects that commodity costs will ease over the next two quarters.

Rising material costs have compelled the firm to jack up product prices. According to Moeller, the firm has implemented about 80% of those increases it plans to take for the full fiscal year. He noted that pricing is expected to contribute to organic growth over the next few quarters.

P&G has indicated that pricing decisions are not taken lightly.

Moeller said the firm’s $3.5 billion in price increases has been followed by competitors in most markets, but “we've got these very isolated discrete instances where competitors haven't followed.”

“In the U.K. for example, we've continued to see deep discounting from Unilever on both the hair care and laundry categories,” he said.

In response, P&G does plan to roll back prices for its Cascade brand in North America, and suggests it will consider similar action on other pricing “disparities.”

Morningstar analyst Lauren DeSanto said in a Jan. 27 research report that P&G's “overly aggressive price actions,” in addition to high commodity costs and foreign exchange headwinds, have “assailed” its earnings in the quarter.

“It's clear that P&G is struggling to restore growth in developed markets where some product categories are contracting, and the firm is getting push-back on some of the price increase it's taken,” she said.

The analyst noted that during the call P&G pointed out that it held or increased market share across 45% of its total global sales; however, that figure was around 60% in previous quarters.

Beauty net sales in the quarter inched up 1% to $5.4 billion, with organic sales growing 2%, and pricing adding 3% to growth. Net earnings for beauty declined 8% to $802 million as higher commodity costs more than offset the impact of sales growth.

“Volume in skin care, personal care and cosmetics decreased low-single-digits due to the Zest and Infasil divestitures, Olay share loss in developed markets and the volume impact of price increases due to consumer value differences relative to competitive products in North America,” the firm says in the release.

P&G noted that the North American beauty business continues to face stiff competition, predominantly in the mid-price skin-care tier where Olay competes. New Olay products are on the horizon, the firm indicated.

P&G's net sales for the quarter grew 4% to $22.1 billion, with growth driven by higher volume and pricing actions, “partially offset by geographic and product mix.”

Looking ahead, P&G expects net sales for fiscal 2012 to increase by 3% to 4%, with organic sales up 4% to 5%. The organic projection is lower than the firm's earlier expectations of 3% to 6%.

Strategic pricing is expected to add 4% to sales, while unfavorable product and geographic mix is expected to depress sales by 1% to 2%, the firm said.

P&G's Q2 Earnings Burdened By Rising Costs, But Respite In Sight

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