Colgate-Palmolive Co. said Thursday that higher revenue in Latin America fueled its second-quarter earnings, underscoring how American companies are increasingly relying on foreign markets as recession-weary U.S. customers get tapped out.
The New York company, best known for its toothpaste and dish soap, also noted that it had raised prices by 6.5 percent in Latin America, where customers are more willing to absorb the extra expense. It lowered prices in North America by 4.5 percent by offering discounts, which also helped it head off competitors who are scrapping "for pieces of a smaller pie," said CEO Ian Cook.
However, Cook also said he expects U.S. prices to increase in the second half of this year. The company hopes that focusing on higher-end products, such as toothpaste for sensitive teeth, and more advertising will entice U.S. customers to keep buying.
"If the performance of the product is superior and seen as a real benefit by the consumer, there is the opportunity to raise price," Cook said.
Like many companies, Colgate is paying more than it was a year ago for the materials it needs to make and transport its products. Companies want to pass those costs along to customers by raising prices at the store, but have to be careful not to raise prices too much and drive customers away. Though Colgate's revenue rose 10 percent, the amount it had to spend to make and transport those goods rose 13 percent.
Cook said that retailers and customers have so far accepted the higher prices. He added that current price increases this year are substantially less than price increases the company took after a spike in gas prices in fall 2008. He also notes that competitors have raised their prices too.
Cook said prices have "not been debilitating from a consumer point of view so far," and he's confident that "we can take pricing in a world where (other) people are doing the same."
Colgate has tried to mitigate the price increases for customers by trimming its own expenses, which Cook said can include "everything from telephones to computers to cars to lab supplies." However, Colgate's general and administrative expenses rose 10 percent as the company spent more on advertising, much of it aimed at making customers aware of new products.
The company said that higher commodities costs also drove down its gross profit margins. For the second quarter, the gross profit margin was 57.4 percent, down from 58.8 percent a year ago. Basically, that means that for every dollar the company generated in sales, it had 57.4 cents left over to cover basic operating costs and profit.
Colgate said its revenue for the three months ended June 30 increased 10 percent to $4.19 billion, edging analysts' estimates of $4.16 billion. Net income rose 3 percent to $622 million, or $1.26 per share.
Revenue growth was strongest in Latin America, where it climbed 17 percent. Revenue increased 12 percent in Asia and Africa, and 11.5 percent in Europe and the South Pacific, but fell 3 percent in North America.
Colgate gets about 80 percent of the revenue in its largest division _ oral, personal and home care _ from outside North America, up from about 75 percent five years ago. To be sure, some of the revenue gains are from favorable foreign exchange rates. As the dollar weakens, the revenue that a company earns overseas translates into more U.S. dollars.
Colgate's stock fell 61 cents, or 0.7 percent, to close at $84.88 Thursday.
AP Business Writer Michelle Chapman in New York contributed.