Colgate-Palmolive Co. said on Thursday a key measure of sales growth slowed for the second quarter in a row as the company faced increased pressure in Venezuela.
Shares of the toothpaste maker fell as much as 3.7 per cent, even as fourth-quarter profit rose slightly more than expected. The stock is up 6 per cent so far this month after rising 13.2 per cent in 2012, and some analysts suggested investors use the weakness as a buying opportunity.
Results were disappointing in Latin America, due largely to economic and labour problems in Venezuela, which accounts for about 5 per cent of total sales. Colgate also faces tougher competition in Latin America from Procter & Gamble Co., particularly in sales of toothpaste and toothbrushes.
Organic sales, which strip out the effects of foreign exchange fluctuations, acquisitions and divestitures, rose 4 per cent in the quarter. Organic sales rose 5 per cent in the third quarter and 8 per cent in the second quarter.
Colgate still executes “very well on a number of fronts, though this seems to be reflected in the shares,” said Oppenheimer analyst Joseph Altobello.
He kept a “perform” rating on the stock, adding that investors should “act opportunistically on pullbacks.”
Colgate, which will cut about 6 per cent of its work force in a restructuring announced in October, spent more on advertising for its toothpaste and other products.
It earned $598-million (U.S.), or $1.26 per share, in the fourth quarter, up from $590-million, or $1.21 per share, a year earlier.
Excluding aftertax charges from the restructuring and costs from the sale of land in Mexico, Colgate earned $1.41 per share, topping the analysts’ average estimate of $1.40, according to Thomson Reuters I/B/E/S.
Sales rose 2.5 per cent to $4.29-billion, missing analysts’ target of $4.31-billion. The volume of goods sold increased 1.5 per cent, and prices rose 2.5 per cent.
Colgate shares were down 3.1 per cent at $107.39 after falling as low as $106.74.
Meanwhile, Energizer Holdings Inc., which also competes with P&G and is also cutting jobs, topped expectations, even as sales declined. Its shares fell 3.2 per cent to $85.43.
Sales rose 1.5 per cent as volume fell 1.5 per cent and prices increased 5 per cent in Latin America, Colgate’s biggest market with 29 per cent of sales.
Organic sales in Latin America rose 4 per cent, considerably less than 9 per cent in the third quarter and 14.5 per cent in the fourth quarter of 2011.
“What was striking to us in the quarter was the significant toll that the tough Venezuelan operating environment had on the firm’s results,” said Morningstar analyst Erin Lash.
An increasingly difficult economic and labour environment in Venezuela hurt both volume and gross profit, Colgate said. The company faced labour problems in Venezuela during the quarter, and believes a number of other companies did as well.
Venezuelan business leaders have complained that the uncertainty over President Hugo Chavez’s prolonged absence, and bad policies have led to growing economic imbalances. A devaluation of the bolivar currency would make exports more competitive by lowering local production costs and spur domestic industries by making imports less competitive.
Colgate expects 2013 earnings to grow at a double-digit clip, excluding factors such as restructuring charges and potential currency devaluations or macroeconomic changes.
The 2012 restructuring plan, including a 6 per cent reduction in the work force by the end of 2016, is on track, Colgate said. It plans to take $775-million to $875-million in aftertax restructuring charges and expects to save $275-million to $325-million aftertax annually by the fourth year of the plan.
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