P&G Bucks Downturn, Reports 9% Earnings Rise

Big corporations are like nations unto themselves. Yesterday, Clayton C. Daley Jr., chief financial officer of consumer-product giant Procter & Gamble, explained just how.

P&G, which makes scores of products, including brand names such as Downy, Charmin, Crest, Folgers and on and on, reported a nearly 9 percent rise in its fiscal first-quarter earnings yesterday, swimming against the undertow of recession.

Earlier this year, P&G predicted that sales for the quarter would grow at a rate of between 4 percent and 6 percent. Yesterday it announced the number was actually 5 percent. Dead on.

So from the outside, P&G looks like a very large, very stable, very in-control company.

Behind the scenes, though, the company has been managing numerous and highly volatile forces, many of them in conflict with each other, much like a nation trading with its neighbors while managing its own economy during a war and an election.

For instance, the dollar's appreciation in recent weeks is a bad thing for P&G, because so much of the company's revenue comes from overseas sales. That means foreign profits are worth less, Daley said during an interview on CNBC yesterday.

On the other hand, commodity prices have been heading downward, and that's a good thing for a company that makes everything from Clairol to Pringles. But because it takes so much time to convert those raw materials into products, P&G won't enjoy the lower commodity costs for three to six months, Daley said.

And, he added, P&G is still paying the price for oil that sold for more than $140 per barrel earlier this year.

P&G is exposed to almost the entire commodity market, Daley said, much like a manufacturing nation.

"Crude is only one input in our cost structure," he said. "We buy a lot of inorganic chemicals, like phosphate, which is $2,000 a metric ton; pulp, metals, a whole basket of commodities."

So if P&G is like a country, its sales would be analogous to exports. In a down economy like this one, that could mean that consumers no longer buy premium P&G products.

But, as Daley said, "we sell Tide and Gain, Pampers and Luvs. Even if consumers trade down, they are very likely to trade down to one of our products."

Take the corporate-nation analogy one step further: For its fiscal year ended June 30, P&G's total revenue was $83.5 billion, which, comparing it with gross domestic product, would put the company between the Slovak Republic (2007 GDP: $74.9 billion) and Kuwait ($102.1 billion).

Daley said his company has no plans to take advantage of the government commercial paper program. Unlike a number of other companies, P&G has avoided the risky financial instruments that helped bring down the financial sector.

Sort of like a well-run country.