Originally created 04/16/04

Consumer-staples companies expect gains despite rising costs



NEW YORK -- First-quarter earnings reports from consumer staples companies are expected to show steady gains, despite indications of rising costs for a wide range of commodities.

Beverage companies are increasing prices as the cost of aluminum and resin, two raw materials used in packaging, begin to rise. Household products companies have done the same in categories such as paper towels and tissues to offset the rising prices paid for wood pulp and natural gas.

Meanwhile, food companies, which also are facing higher costs for ingredients such as soybeans, are expected to announce similar increases to offset their rising expenses.

The rising commodity costs come at time when many consumer staples companies also are experiencing higher employee-benefit costs. For some time, the companies have tried to offset their rising expenses through productivity gains and cost-cutting.

Consumer products giant Procter & Gamble Co., set to report April 30, continues to perform well after completing a restructuring program last year.

The Cincinnati company announced in March that its fiscal third-quarter earnings were expected to exceed the average Wall Street earnings estimate at the time by one or two cents a share. The announcement marked the ninth time in 10 quarters that P&G raised its quarterly guidance. The rosy results were driven by an estimated 10 percent increase in volume.

At the time, analysts were predicting earnings of $1.06 a share for the quarter, which ended in March. Since then, analysts surveyed by Thomson First Call have boosted estimates to $1.08 share.

Kimberly-Clark Corp., which reports earnings on April 22, also indicated that it would have good results for the quarter. The Irving, Texas, maker of Huggies diapers expects its first-quarter earnings to be 91 cents a share, which is higher than previously forecast, as the weak dollar and new products helped to increase its sales by 10 percent to $3.8 billion. Last year, Kimberly-Clark earned 80 cents a share.

Colgate-Palmolive Co. is expected to post a 5 percent increase in first-quarter earnings to 59 cents a share from 56 cents a share last year, according to Thomson First Call. The New York-based company reports earnings on Wednesday.

"Earnings in the second half of 2003 were atypical of Colgate and we expect the first half of 2004 to be similarly challenged," Credit Suisse First Boston analyst Lauren Lieberman said in a research note.

The analyst, who doesn't own Colgate shares, expects the company's North American volume to be down 2 percent. Last year's results were buoyed up by consumer interest in the company's Simply White tooth whitening product. Despite high hopes for the product, Simply White failed to garner as much interest as a competing product from P&G, Crest Whitestrips.

Kellogg Co., of Battle Creek, Mich., already has signaled the strong momentum it is experiencing in its U.S. and international cereal business. Earlier this month, the maker of Frosted Flakes and Special K cereals said it expects its first-quarter earnings to be up about 30 percent, or about 52 cents a share. Last year, the company earned 40 cents a share. Kellogg's performance reflects both sales increases and the benefit of the weak U.S. dollar.

Kellogg reports earnings on April 22.

Analysts expect Kellogg will have one weak spot: cookies. Consumers, who are either on low-carbohydrate diets or are simply being health conscious, have been avoiding some treats such as cookies, while others are switching to other snacks that are perceived to be healthier, such as cereal bars.

Kraft Foods Inc., the Northfield, Ill., maker of Nabisco cookies, is expected to see similar trends. According to Thomson First Call, Kraft is expected to earn 43 cents a share, down from earnings of 49 cents a share. Kraft reports its results after the market closes on Monday.