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Today, October 19, Procter & Gamble (PG) reported fiscal year first quarter earnings of $1.61 against Wall Street projections of $1.59. (That’s down 1% from the first quarter of the prior fiscal year.) Sales grew to $20.34 billion versus Wall Street expectations of $19.89 billion. Organic revenue growth was 4% against Wall Street expectations for 2.1%.

So as the close the stock is down 1.18%.

And the results today are seen as disappointing.

To figure out why, look beyond those top of the report numbers to the squeeze on margins from higher raw materials costs and from rising expenses for shipping.

For the quarter, gross margin fell short of expectations. And the problem isn’t going to be limited to this quarter. The company forecast $2.3 billion in after-tax expenses in the current fiscal year from higher raw materials and fringe costs. That’s an increase from the prior guidance of $1.9 billion for the year.

In its earnings conference call the company said, “Core gross margin decreased 370 basis points and currency neutral core gross margin was down 390 basis points. Higher commodity and freight cost impacts combined were a 400 basis point hit to gross margins, mix was an 80 basis points headwind, primarily due to geographic impacts. Productivity savings, pricing and foreign exchange provided a partial offsets to the gross margin headwinds….Core operating margin decreased 260 basis points. Currency neutral core operating margin declined 270 basis points.”

The implications are scary for the Main Street economy. Procter & Gamble is very disciplined at managing costs. The this quarter, the drop in margins came despite Productivity improvements that added 180 basis points in the quarter.

Most companies don’t have the market share clout to get the kinds of deals that Procter & Gamble can get on raw materials and shipping. And most don’t have Procter & Gamble’s discipline on cutting costs.

If you’re trying to track inflation and inflation expectations going forward, I’d note that Procter & Gamble warning that it pass along cost increases to consumers in higher prices.