Personal care sector outlook looks favorable

With Colgate, Revlon, Alberto-Culver and Estee Lauder all releasing strong quarterly results and Avon increasing its quarterly dividend in the space of the last week, the outlook is starting to look a little brighter for an industry that has recently struggled in the face of a hugely competitive retail conditions in the US and slack European economies.

But now increasingly stronger results are forcing analysts to reconsider their ratings and forecasts. Indeed, at the end of last week Prudential Financial analyst Constance Maneaty issued a 'favorable' rating on the cosmetics, household and personal care sector.

Further to that comment, Prudential Financial said it particularly favoured investment in Revlon and Colgate Palmolive.

And with good cause. Yesterday Colgate announced a 24 per cent leap in its fourth quarter profits, to reach $361.2 million, a result that was lifted by higher prices combined with increased volumes.

Likewise, Revlon has implemented a tough re-branding campaign which, combined with strong international sales, is expected to give the company a significant boost during the course of 2006. Although its financial performance has not exactly been red hot of late, the financial world appears to have faith in its restructuring programme.

Meanwhile Estee Lauder reported quarterly sales rose 5 per cent during the all-important second quarter, which incorporates holiday trading. This meant that net sales stood at $1.78 billion. This meant that net profits were up 8 per cent to reach $150.4 million.

Like Revlon, the company pointed to a strong international performance, while it said that trading in the US reflected the 'mixed retail environment'. CEO William Lauder also pointed out the benefits of 'cost containment' initiatives, which had also helped to drive the strong top-line growth.

Hair care specialist Alberto-Culver also reported a strong latest quarter, with net income covering the holiday trading period increasing from $49.4 million to $52.4 million. Alberto-Culver has also implemented a tough restructuring program which has included spinning off its ailing salon hair care division, Sally.

To top off the good news, encouraging indications of recent sales has prompted Avon to boots its quarterly dividend by a penny to 17.5 cents, a move that possibly points to brighter times for the direct sales giant after struggling to maintain its market share in the US.

With many of the major personal care players now benefitting from comprehensive restructuring programmes and international sales still picking up, the indications are that 2006 should see a better performance from the sector as a whole.