Q2 Looks Like a Washout for Household-Goods Makers

July 12 -- Expect the dark cloud hanging over consumer-products stocks to linger a while longer.

The second quarter should bring solid earnings, but stagnant sales growth continues to worry investors. With raw-materials costs rising, companies’ limited power to raise prices will continue to hamstring these shares in coming months, analysts say.

The bad news is well documented. Sector giant Procter & Gamble and soap pusher Dial have warned of earnings shortfalls, while blade runner Gillette said a weak euro would shave second-quarter sales.

As a result, virtually all of the stocks in the group are sharply off year-ago levels, with Dial trading at barely a third of last July’s price, and Procter & Gamble off by more than half this year alone.

Great Expectations

Expectations hold the key. “One of the hallmarks of this group has been its consistency, and over the past year-and-a-half it’s been everything but that,” says William Steele, analyst with Dial underwriter Banc of America Montgomery. “The result of that has been multiple compression.”

Steele attributes the sector’s recent problems in part to overly ambitious forecasts that caused companies like P&G to disappoint the market on numerous occasions. Though P&G’s promise to stick to less-optimistic estimates last month came as welcome news, many market watchers said the company might not be out of the woods yet.

Stagnant sales growth remains a concern, according to Goldman Sachs analyst Amy Low Chasen. She forecasts earnings per share growth of 5.8 percent for the second quarter, an improvement over the 4.4 percent average growth reported for the first quarter and the 3.9 percent for 1999. (Goldman Sachs has underwritten for Estee Lauder, Gillette, Kimberly-Clark and P&G in recent years.)

But Chasen forecasts average sales growth of 4.5 percent for this quarter, only slightly higher than the 4.1 percent growth in the first quarter and the 4.4 percent average sales growth seen last year.