- Elaine Wong

Procter & Gamble's profitable fourth quarter earnings, reported today, are a testament to brand strength and a diverse product portfolio, experts say.

The world's largest consumer packaged goods company reported a 33% increase in net income from April through June to $3.02 billion. Net sales rose 10% for the same period to $21.3 billion and 9% for the fiscal year to $83.5 billion, per the company.

Speaking to analysts this morning, chairman and CEO A.G. Lafley credited P&G's product innovations and robust brand portfolio as major contributors to P&G's fourth quarter growth. Its Gillette Fusion brand, in particular, saw volume rise 30% globally in Q4 compared to the year-ago period. Overall, fabric and homecare performed the best: net sales increased 13% during the quarter to $6.1 billion.

"Once again, P&G delivered top and bottom line growth at or above the company's targets," Lafley said in a written statement. "We're leading innovations across the brand portfolio, building value for consumers and customers., which is critical to delivering good results in a difficult economic environment."

This combination of strategies, namely brand and equity building and delivering key category differentiation, is what accounts for P&G's better-than-predicted growth, said Robert Passikoff, founder of research consultancy Brand Keys, N.Y. (The CPG company bested analysts' initial estimates by 2 cents with a reported earnings per share of $0.92.) In particular, P&G has been able to retain market traction by employing a three-tiered approach: differentiation, added value and cross-category equity building, Passikoff said.

In a market that's saturated with private label and competitor brands, P&G is distinguishing itself by offering benefits other brands do not, Passikoff said. "What you find is that brands that are either in reality or via perception seen to better meet the expectations that people hold for a category are the brands that you will always see do better than others," he said.

Such was the case in the laundry care segment, where P&G recently introduced beauty care ingredients in forming its new Tide and Downy Total Care line. Another new product rolling off the shelves is its CoverGirl Crest Amazemint lip gloss, which offers oral care benefits like fresh breath and tooth whitening.

Although P&G reported mixed results across its portfolio of brands, the general outlook was one of positive growth, said Loran Braverman, an equity analyst at Standard & Poor's, New York. In the beauty care sector, sluggish sales of P&G's Pantene and Professional Hair Care brands were offset by consumer demand for Head & Shoulders, Rejoice and Nice ‘N Easy. Similarly, volume in the batteries segment brought in "low-single digit" sales for P&G, but it was supplemented by strong home and fabric care profits. The diverse product portfolio helped even out blips in consumer purchasing habits, Braverman said.

"One of the things that Procter had mentioned before and again was the importance of having a tiered portfolio," Braverman said. In the case of laundry detergent, having a lower-priced product such as Gain saved Tide loyalists from trading down to private label, she added.

Jack Russo, an analyst at Edward Jones, St. Louis, said P&G's performance, while stellar, doesn't make it immune to the recessionary environment. "A.G. Lafley said he hasn't seen anything like it," Russo said, referencing the CEO's remarks about skyrocketing commodity costs and price increases. "The 1970s were a period of high inflation. This is topping that. And so, they're trying to be careful and cautious on raising prices."

Like other CPGs, P&G has responded to rising commodity costs by instituting price hikes and cost-saving programs across its brands. The company also announced plans to divest slow-revenue generating brands, such as its Folgers coffee business, which was sold to J.M. Smucker, and ThermaCare, which was acquired by Wyeth.

"The main challenge for all CPGs is whether the price increases they need to take to offset the commodity increases are going to depress unit volume so much that their yearly results are affected, and we're beginning to see some impact," Braverman said. And in coming months, the real test will be whether or not CPGs, including P&G, can continue applying the same strategies to deal with the recession.