Colgate-Palmolive hit by packaging costs

Related tags Generally accepted accounting principles Profit

Colgate-Palmolive has warned the financial world that increasing
packaging prices and marketing costs are likely to have a serious
impact on its financial results for the third quarter.

The company said that despite worldwide unit volume and market shares growing above expectations, the increased costs will result in second half earnings below previous expectations. The company said it expected share earnings to fall in the $.57 to $.59 range for both the third and fourth quarters - well below analysts' expectations for between $.64 and $.71.

Reuben Mark, CEO explained that the increased marketing activity had had a desired affect on certain brand franchises globally, citing toothpaste growth in the US market as being at an all-time high.

"At the same time, an industry-wide increase in raw and packing material costs has offset our 'Funding the Growth' programs to an unusual degree,"​ he said. "Our savings programmes will likely add over 100 basis points but will be more than offset by the combination of higher commercial investment levels and increased raw material and packaging costs. The combined effect of increased spending and the rise in material costs is projected to result in gross profit margin for full year 2004 that will be even with or slightly better than the record 55 per cent set in 2003.

"Looking at the third quarter, while we only have results for the first two months, worldwide volume for the quarter should be up over 7 per cent, with dollar sales up about the same. Operating profit in North America and Europe should be up. Operating profit in our other international divisions and at Hill's is expected to be level with the prior year, resulting in a slight increase in worldwide operating profit. As previously announced, the tax rate will be sharply higher than last year."

Mark added that despite the outlook, the company was still intending to maintain aggressive commercial spending, in an effort to maintain profitability in 2005.

Shares in Colgate-Palmolive​ fell by $6 in early trading today, to $48.34, reflecting the nervousness of the business world about the announcement. But the implications for the personal care and cosmetics industry will be even more hard-hitting, with the increase in marketing expense reflecting just how competitive the market is at the moment and the rise in packaging costs having even wider ramifications that will be hard to avoid.

Related topics Market Trends Packaging

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