updated 1/31/2008 10:00:02 AM ET 2008-01-31T15:00:02

Consumer products maker Procter & Gamble Co. said Thursday that its earnings rose 14 percent in its fiscal second-quarter as strong sales growth and cost-cutting measures more than offset higher commodity costs.

The results prompted the company — which manufacturers products including Tide detergent, Olay skin care and Gillette shavers — to raise its outlook for the full year.

P&G also said it will separate its coffee business into an independent company. Cincinnati-based Folgers Coffee Co., which had sales of about $1.6 billion in 2007, will employ about 1,250 employees at four sites in the United States. Jamie Egasti, president of coffee and global snacks at P&G, was named chief executive of Folgers Coffee.

P&G, also based in Cincinnati, said its net income rose to $3.27 billion, or 98 cents per share, in the October-December period from $2.86 billion, or 84 cents per share, a year ago. Sales grew 9 percent to $21.58 billion from $19.73 billion a year ago.

Analysts surveyed by Thomson Financial expected profit of 97 cents per share on revenue of $21.25 billion.

“This quarter is another demonstration of P&G’s capability to deliver strong results in a difficult competitive and commodity cost environment,” said A.G. Lafley, P&G’s chairman and chief executive. “Looking ahead, we are confident that the strength of the company’s brand portfolio, initiative pipeline and productivity program will enable P&G to continue delivering at or ahead of its targets.”

Looking ahead, P&G raised its 2008 profit outlook to $3.46 to $3.50 per share, up about 15 percent year-over-year. The old estimate had been $3.46 to $3.49 per share. Fiscal third-quarter earnings per share are expected to be 79 cents to 81 cents a share, the company said.

Wall Street has been predicting quarterly profit of 83 cents per share and fiscal 2008 earnings of $3.49 per share.

P&G shares have been slipping after a strong second half of 2007, when it traded at a record high of $75.18 per share. Shares have traded as low as $60.42 over the last 52 weeks.

For the first half of the fiscal year, P&G earned $6.35 billion, or $1.90 a share, up 10 percent from $5.56 billion, or $1.63 a share, in the first half of 2006.

Sales for the six-month period rose 8 percent to $41.77 billion, from $38.51 billion a year earlier.

P&G officials last year said they were reviewing their portfolio to possibly divest slower-growing brands, and Folgers, obtained by the company in 1963, had been subject of speculation as a spinoff target.

P&G said Thursday that the move will help the company focus on faster-growing businesses, while the coffee business will get greater attention as a standalone company.

The company said it hasn’t decided on the form of the Folgers separation, but was leaning toward a transaction in which shareholders would have the option of exchanging P&G shares for shares in the new coffee company. P&G said the structure will depend on market conditions, and it expects to make a final decision in the April-June quarter and complete the transaction in the second half of 2008.

While Folgers has been the nation’s No. 1 ground coffee brand and is among P&G “billion-dollar brands” in annual sales, it has faced increased competition from Starbucks and other coffee-makers. Folgers, which dates to a 19th century California family business, has been expanded with gourmet and other specialty lines in recent years.

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