By Jessica Wohl

Shares of P&G, the world's largest consumer products company that sells everything from Tide laundry detergent to Gillette razors, fell as much as 5 percent.

"We're in a very volatile and obviously uncertain period and it's going to take months and quarters for that to sort out," Chairman and Chief Executive A.G. Lafley said during a conference call. As recently as December, Lafley had referred to the company as recession-resistant.

"Investors are kind of racing to the exits here," said BMO Capital Markets analyst Connie Maneaty. She said the market could be reacting to the possibility that P&G's volume growth may not recover soon.

P&G earned $5 billion, or $1.58 per share, in its fiscal second quarter, compared with a profit of $3.27 billion, or 98 cents per share, a year earlier.

P&G had forecast earnings of $1.58 to $1.63 per share. Thirteen analysts, on average, expected it to earn $1.58 per share, according to Reuters Estimates. The results include a gain of 63 cents per share from the sale of its Folgers coffee business to JM Smucker Co .

Earnings from continuing operations totaled 94 cents per share, compared with an average forecast of 99 cents per share, based on six analysts polled by Reuters Estimates.

P&G lowered its earnings and sales forecast for the fiscal year ending in June, adding to the list of household products makers tempering expectations as they deal with the recession.

Earlier this week Kimberly-Clark Corp forecast a lower-than-expected profit and Colgate-Palmolive Co said it was comfortable with analysts' expectations, which were below its prior forecast.

P&G expects fiscal 2009 sales to be flat to down 4 percent. Organic sales, which exclude the impact of acquisitions, divestitures and foreign exchange, are now expected to rise 2 to 5 percent, down from an earlier forecast of 4 percent to 6 percent growth that P&G stood by as recently as December.

While Colgate forecast volume growth in its various geographic regions for the current quarter and year, P&G said organic volume should fall 2 percent to 3 percent this quarter and be flat to down 2 percent this year.

"Colgate for the most part has medium priced products and you really can't do without toothpaste. Procter has a broader portfolio with much more higher-priced product and much more discretionary products and people can just decide not to buy them," said Maneaty.

BUYING LESS

Consumers are using up what they have in their pantries rather than stocking up on items such as shampoo and detergent. Retailers are buying less in line with decreased demand and, at the same time, a stronger dollar has lessened the value of sales outside the United States.

"We should see the inventory situation begin to moderate a little, but frankly, I want to stay cautious there until we actually see it," Lafley said.

P&G is trying to show investors that it is doing what it can to keep shoppers interested in its brands, while cutting its own costs.

P&G is using more coupons and other promotions to tout the value of its products and taking steps such as cutting travel costs by relying on more video and phone conferencing, Chief Financial Officer Jon Moeller said during the call.

At the same time, P&G should get some relief from higher commodity and energy costs. While such costs will still be higher this year, P&G now expects to incur slightly less than $2 billion in incremental costs, down from a forecast of about $2 billion it issued in December.

Lafley said he does not expect to see a return to price wars in the industry if commodity costs come down and consumers remain under pressure.

Second-quarter sales fell 3 percent to $20.37 billion, while volume dropped 3 percent. Organic sales rose 2 percent. On a net basis, sales fell in every unit except for baby and family care, where sales rose 3 percent.

P&G said it is comfortable with analysts' current consensus estimate of $4.29 per share for the year, which ends in June. P&G lowered its own guidance to a range of $4.20 to $4.35 per share from a range of $4.28 to $4.38 per share.

P&G forecast third quarter earnings of 78 cents to 86 cents per share, including Folgers-related restructuring charges. It said total sales should fall 2 percent to 7 percent in the quarter.

Shares of P&G, a component of the Dow Jones industrial average <.DJI>, were down 5.9 percent at $54.77 in midafternoon trading.

(Reporting by Jessica Wohl; Editing by Derek Caney and Gunna Dickson)