Colgate-Palmolive's 3Q net income rises 4.9 pct

AP News
Posted: Oct 28, 2010 12:47 PM
Colgate-Palmolive's 3Q net income rises 4.9 pct

Consumer products maker Colgate-Palmolive Co.'s third-quarter net income rose 4.9 percent, even though currency fluctuations dampened its revenue.

Colgate, which produces Palmolive soap, Colgate toothpaste, Hill's pet food and other top sellers, makes almost two-thirds of its sales abroad, so it is especially exposed to changes in foreign currency. In announcing its results Thursday, the company also took a cautious view of next year's results, saying it would increase marketing spending to boost sales.

Price cuts and promotions, like those many consumer companies have made to retain customers, also ate into Colgate's revenue during the third quarter. CEO Ian Cook said the company's profit rose because it cut costs, even as it invested more worldwide.

In the weak economy, consumer product makers must balance maintaining profit margins against increasing advertising spending and promotions to stimulate sales. They're also trying to keep consumer prices low enough to spur shopping but not so low that profits will be hurt. People are shopping with the bottom line in mind and trading down to less-expensive store brands, though there's less competition in the toothpaste aisle.

Another way to stimulate business is to come out with new products and charge more for them. That's what Cook said Colgate plans to do next year, and it will market those new products heavily to keep people spending.

He cited a new Colgate toothpaste that relieves tooth sensitivity and costs more than the company's other toothpastes.

"A clinically proven benefit of instant and long-lasting relief, a super-premium price and the consumer thinks that price is worth paying for the benefit they are getting," he said.

The company also said it is relaunching Colgate Total toothpaste with new packaging and a stand-up cap and plans a new marketing campaign to highlight the toothpaste's 12-hour antibacterial protection.

The New York company said it earned $619 million, or $1.21 per share, in the three months that ended Sept. 30. That's up from $590 million, or $1.12 per share, in the same period last year.

Revenue fell more than 1 percent to $3.94 billion.

Analysts polled by Thomson Reuters expected the company to earn $1.19 per share on revenue of $4.03 billion in the quarter.

Shares fell $1.08 to $74.42 in midday trading Thursday.

For the year, the company expects earnings per share to grow by a double-digit percent. But it expects a mid-single digit increase next year, when it plans to sell more products and increase its market share by advertising more.

Colgate's revenue in the U.S., which produces 19 percent of its sales, grew 2 percent, while the company sold 3 percent more products. Prices cuts reduced its earnings in the U.S. by 1.5 percent.

The company's share of the world's toothpaste marker is now 44.2 percent, and was led by share gains in Brazil, India, China, Venezuela, France, Greece and Britain.

More than 65 percent of the company's revenue is generated abroad, so foreign currency fluctuations can drag down results, once local sales are converted back to U.S. dollars. Colgate said currency changes cut 4.5 percent from its third-quarter revenue.

Foreign currency fluctuations hurt performance more than the 3 percent drag Jefferies & Co. analyst Douglas Lane had predicted for the quarter. He said the bulk of the drag came from converting sales made in Latin America, which were hurt 12 percent, worse than his estimate of an 8 percent drag.

The company beat results because it was able to cut expenses, he said, adding that helped results by 7 cents per share. But he noted the outlook for 2011, the company's initial take, was below his expectation of low-double digit growth and the Street's estimate of 9 percent growth.

He maintained his "Hold" rating and $85 target share price.