Colgate-Palmolive Co. tempered its forecast of double-digit profit growth for the year, saying the stronger dollar was cutting into its profits.
The toothpaste maker also posted on Thursday a slightly better-than-expected quarterly profit as sales increases in markets such as Latin America and India helped it overcome some weakness in businesses such as U.S. pet food.
Results from Colgate and other consumer products companies suggest that Procter & Gamble Co. , the largest household goods maker, may also be under pressure. Its results are due on Friday.
Colgate, which does most of its business outside the United States, sees macroeconomic conditions and the volatility of foreign exchange rates as increasing challenges, chairman and chief executive Ian Cook said in a statement. Colgate is responding by stepping up advertising to try to increase sales and continuing to cut costs where it can in order to expand gross margin and boost earnings at a faster clip.
Colgate previously said it expected to return to double-digit earnings-per-share growth in 2012 after earnings per share rose just 4 per cent in 2011, excluding certain items.
While it still expects double-digit growth in 2012, on Thursday it added the caveat that such growth would be on a currency-neutral basis. Colgate said that at current spot rates currency translation would cut 2012 earnings-per-share growth by about 4 per cent.
“I think they did the right thing,” in adding currency to the forecast, said UBS analyst Nik Modi, who has a neutral rating on Colgate.
The last time currencies were really a problem for Colgate it maintained a double-digit growth forecast and pulled back marketing support behind its brands so it could meet that goal, he said. While cutting back on marketing spending can help short-term earnings, it can hurt sales of a brand in the long term.
Shares of Colgate were up 2.3 per cent to $91.48 (U.S.) in early trading. Through Wednesday, the shares had fallen 3.2 per cent this year, dropping slightly more than those of larger rival P&G, which are down 2.6 per cent this year.
“With the stock underperforming the group (year to date), we think the reduction in guidance was somewhat expected, but should still weigh on the stock a bit,” said JP Morgan analyst John Faucher. “Also, we view the quality of the quarter as sub-par, as a lower tax rate enabled them to meet our estimate.”
Earlier this week, Kimberly-Clark Corp. and Johnson & Johnson cautioned that 2012 could be tough.
“All the read-throughs, not just from Colgate, but from Kimberly, from J&J, from the western European retailers, they’ve all been pretty much negative,” said Mr. Modi.
Colgate earned $590-million, or $1.21 per share, in the fourth quarter, compared with a profit of $624-million, or $1.24 per share, a year earlier.
Excluding nine cents in charges related to initiatives including cost cutting, the sale of land in Mexico and a legal matter in France related to a divested business, Colgate earned $634-million, or $1.30 per share, in the latest quarter. On that basis, analysts’ average forecast was $1.29.
Sales rose 5 per cent to $4.17-billion, with the volume of goods sold up 4 per cent. Analysts on average expected $4.18-billion, according to Thomson Reuters I/B/E/S.
In Latin America, Colgate’s largest market with 28 per cent of total sales, sales rose 6.5 per cent and operating profit rose 14 per cent, with volume growth led by Brazil, Mexico and Colombia.
In North America, which accounts for 18 per cent of total sales, sales rose 3.5 per cent and operating profit fell 11 per cent due to higher commodity costs and advertising spending.
At the Hill’s pet food business, which is separated from the geographic units and accounts for 13 per cent of sales, sales rose 2 per cent and operating profit was up 4 per cent. Volume declined in the United States and Japan, and was down 1.5 per cent overall at the unit.
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