By Anjali Cordeiro
NEW YORK (Dow Jones) Signaling a gradual improvement in its business and raising hopes for a turnaround in sales, consumer company Procter & Gamble Co. (PG) said volumes improved steadily through its first quarter and boosted its projections for the fiscal year.

P&G’s earnings for the quarter topped forecasts and its smaller rival Colgate-Palmolive Co. (CL) reported a better-than-expected 18% rise in third-quarter profit. Both P&G and Colgate are starting to benefit from moderating commodity costs, but their results also suggest some improvements within the consumer products industry. P&G said Thursday that it now sees the consumer goods markets it operates in growing 1% to 2% in its fiscal year, a little faster than its previous expectations but still below historical levels.

P&G, maker of Tide detergent, Pampers diapers and Olay creams, saw sales and volumes tumble during the recession as consumers turned away from some of its pricier offerings. Those pressures continued into P&G’s fiscal first quarter as revenue and volumes declined again. But the company’s earnings exceeded expectations and its improved outlook suggested that it expects recent efforts, which include cutting prices and making a deeper push into emerging markets, to pay off as the year progresses.

In September, P&G said it was cutting prices and increasing promotions across nearly 10% of its household brands in a bid to boost its volume and increase its market share. The company has recently lost share for key brands and investors have been watching closely for any indications of a sales turnaround at the consumer goods company. P&G said it now expects volume to grow in coming quarters.

“The fact that our volume rate picked up month-to-month throughout the quarter and that September was actually a record shipment month … suggests that the business is strengthening,” said Chief Executive Bob McDonald on a conference call.

P&G stands to benefit more as economies around the world strengthen and consumer spending improves. The Cincinnati company’s volume fell 3% in the latest quarter, but even that volume decline wasn’t as bad as some analysts had feared. “The key takeaway is that the company is showing improvement in its sales performance more quickly than we had anticipated,” said Goldman Sachs analyst Andrew Sawyer in a research note. Shares of P&G, a component of the Dow Jones Industrial Average, were recently up 3.7% to $59.37.

For the quarter ended Sept. 30, Procter & Gamble posted earnings of $3.31 billion, or $1.06 a share, compared with $3.35 billion, or $1.03 a share, a year earlier. Per-share earnings were above the company’s projections of 95 cents to $1.

Revenue declined 6% to $19.81 billion. The company’s closely watched organic sales, which excludes the effect of acquisitions and exchange rates, rose 2%. Gross margins climbed to 52.6% from 49.7% on benefits from previous price increases and lower costs.

For fiscal year 2010, the company increased its expectations for organic sales growth by 1 percentage point to a range of 2% to 4%.

For Colgate, the earnings rise came amid higher volume and cost cutting. The soap and toothpaste maker’s volume increases were an improvement from the second quarter, when volumes declined. Goldman’s Sawyer said Colgate’s volume could rise even faster in the fourth quarter.

Colgate reported a profit of $590 million, or $1.12 a share, up from $500 million, or 94 cents a share, a year earlier. The prior-year period included 5 cents a share in restructuring-related charges.

Colgate’s revenue was flat at $3.99 billion. While organic sales, which exclude the effects of currencies, acquisitions and divestitures, climbed 7%. Colgate’s volume rose 1.5%. Colgate shares were recently up 48 cents to $78.16.

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