BOOM: There's Your Surging Commodity Costs Killing Earnings

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Photo: Liz (perspicacious.org) via Flickr

Economic bellwether Proctor & Gamble is seeing its shares slide in the pre-market after missing earnings by a penny, and offering an outlook for earnings that are below estimates.This line stands out from the announcement:

Operating margin contracted 210 basis points primarily driven by lower gross margin. ¬†Gross margin declined 140 basis points due to higher commodity costs and unfavorable geographic and product mix, which more than offset manufacturing cost savings, pricing and volume scale leverage. ¬†Selling, general and administrative expenses (SG&A) as a percentage of net sales increased 70 basis points behind foreign currency impacts and investments to support the Company’s innovation and market expansion plans, partially offset by a reduction in overhead spending as a percentage of sales.

Higher commodity prices have been anticipated to be an earnings killer for a while now, and it hasn’t really happened, at least not across the board this quarter. P&G stands out like a soar thumb.

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