Procter & Gamble Co. posted sales that beat analyst estimates while warning that full-year earnings will come in at the low end of its forecast because of currency fluctuations and higher inflation.

P&G, the maker of Tide laundry detergent and Pampers diapers, reported US$20.6 billion in sales in the quarter ended Sept. 30. While revenue rose, volume declined from a year ago -- an indication that gains are being powered by higher prices to consumers.

Charging more for its products has helped P&G partially offset higher expenses on freight and materials in recent quarters. But it’s now facing a stiffer challenge as enduring inflation tests consumers’ ability to absorb price increases across the economy. A stronger dollar is also making P&G's international sales less profitable.

Price hikes are “clearly putting pressure on volumes” but so far “it is still a relatively muted effect,” Barclays Plc analyst Lauren Lieberman wrote in a note.

Shares of P&G climbed as much as 3.2 per cent, their biggest intraday gain since Aug. 1.

The company now sees profit toward the lower end of its forecast range of US$5.81 to US$6.04 in its current fiscal year due to currency effects. Foreign exchange, along with higher material and commodity costs, are seen adding an extra hit of US$3.9 billion after tax this year. That’s US$600 million higher than P&G’s prior guidance.

Earnings per share in the three months ended September were US$1.57, above the average analyst estimate of US$1.55. Unit sales fell three per cent, dropping for the second straight quarter, a sign of weaker demand.

In an interview, Chief Financial Officer Andre Schulten said the company seeks to drive growth with a combination of higher prices and product upgrades, and it's looking for the right equilibrium as consumers' budgets tighten. “Can we stretch this equation to infinity? No. It has to be a careful balance,” he said. 

Schulten said that, excluding Russia, the decline in unit sales in the company’s fiscal first quarter amounted to one per cent. Volumes fell for all P&G units except grooming, which was flat. Organic revenue growth, a metric that excludes the impact of foreign exchange, acquisitions and divestitures, rose seven per cent, outpacing analysts estimates. Price increases of nine per cent drove the jump.

The company cut its outlook for all-in sales for the year while maintaining the forecast for the closely watched metric of organic sales, which excludes some items like currency. Organic sales growth is expected to continue to be driven by price increases amid volume declines, P&G told analysts on a conference call.

 
PREMIUM PRODUCTS

Higher-priced premium products are still driving about 75 per cent of growth in the US among the categories P&G competes in, Schulten said, with items such as single-dose laundry pods driving the segment’s expansion. Consumers looking for value are trading into mid-tier price brands such as Gain laundry detergent, he said.

The company remains focused on its central strategy of upgrading products to add benefits that justify higher prices. Schulten cited Pampers Swaddlers, which have been improved to leak less and better protect babies' skin. At the same time, P&G will continue raising prices as necessary.