updated 10/31/2006 8:37:32 AM ET 2006-10-31T13:37:32

Procter & Gamble Co. posted a 33 percent jump in quarterly profit Tuesday as the addition of products like Gillette razors led to strong sales growth, and slightly raised its profit view for the year, citing lower-than-expected commodity and energy costs.

But the high end of P&G’s profit forecast for the current quarter just meets the average already expected by Wall Street, and shares of P&G slipped from their highs in early trading.

“I think they’re setting the bar low as they move forward,” said SunTrust Robinson Humphrey analyst Bill Chappell, who has a “buy” rating on the shares.

P&G, which makes everything from Pampers diapers to Iams dog food, earned $2.7 billion, or 79 cents per share, in the fiscal first quarter ended Sept. 30, compared to a profit of $2.03 billion, or 77 cents, a year earlier.

The results topped analysts’ average view by a penny per share and came in ahead of P&G’s own forecast of 76 cents to 78 cents per share.

Sales soared 27 percent to $18.79 billion, driven by new items such as a redesigned line of Herbal Essences hair care products and the addition of Gillette’s razors, batteries and toothbrushes.

Cincinnati-based P&G bought Gillette in October 2005, so the year-ago period did not include any results from Gillette. So-called organic sales, or sales excluding the impact of acquisitions, divestitures and foreign exchange, rose 6 percent, meeting the top end of P&G’s long-term goal.

“It was a pretty solid quarter, I just don’t know how high expectations were going into the quarter following last quarter which was just so off the charts,” said SunTrust’s Chappell.

In the fourth quarter, P&G’s profit jumped 36 percent and organic sales rose 8 percent.

P&G, like others, was weighed down by higher costs for oil-based materials and transportation in the past several quarters, and said it is now seeing the cost environment improve. It said operating margins should improve by 0.5 to 1 percentage point in the current quarter and by more than 1 percentage point this year, driven largely by improved gross margins.

“This is the first company I’ve seen to publicly say that commodity costs will benefit them over the next few quarters and hopefully that will be the first shot across the bow for all companies in the ... sector to start talking about favorable commodity costs,” said Chappell.

P&G now expects to earn $2.97 to $3.02 per share this year, including a hit of 12 cents to 18 cents per share from Gillette. It previously expected to earn $2.96 to $3.00 per share with the same impact from Gillette.

Analysts had been calling for a profit of $3.00 for the fiscal year, which ends in June.

P&G still expects full year organic sales growth of 4 to 6 percent and total sales growth of 9 to 11 percent.

For the current quarter, P&G forecast earnings of 81 cents to 83 cents per share, while analysts had expected a profit of 83 cents per share. P&G forecast organic sales growth of 4 to 7 percent in the quarter.

Shares of P&G have set several new highs during the past few months as the company began combining its operations with those of Gillette. P&G shares rose 3 percent from the beginning of October through Monday, compared with a nearly 3.5 percent rise in the Dow Jones industrial average, of which it is a component.

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