Analyst says weakened dollar could boost cosmetic revenues

By Simon Pitman

- Last updated on GMT

Related tags Personal care United states dollar

A weakened dollar could help to boost revenues for a number of
international US-based cosmetics companies, especially those with
exposure in Europe. But with materials and ingredients being
increasingly sourced overseas, the impact on the bottom line may be
minimal.

According to J.P. Morgan analyst John Faucher, the weakened dollar is likely to boost revenues for major personal care and cosmetics companies that are particularly active in Europe, where the strengthened Euro is likely to translate into higher dollar sales.

"Companies with higher European exposure are not only benefiting from greater currency benefits, but also from improving underlying fundamental results across much of the region,"​ Faucher said.

J.P. Morgan covers financial reports and market advice on a number of the leading US personal care companies, including Colgate-Palmolive and Estee Lauder - two companies in particular that Faucher expects will increase their sales revenues.

The current economic conditions are also likely to impact the world's leading consumer goods company, Procter & Gamble, which also has an extensive reach into the European personal care market.

In a note to investors Faucher states that he is expecting revenues to increase during the last quarter of 2006 and the first quarter of 2007 over and above the forecasts that had already been made for the beverage, home and personal care segments.

Initially Faucher's team had predicted a rise of 110 basis points (100 basis points being equivalent to 0.1 per cent) in the segments for the fourth quarter of 2006 and 80 basis points for the first quarter of 2007, but in view of the prevailing economic conditions those figures have been increased to 150 basis points and 110 basis points respectively.

Faucher is managing director of Equity Research at J.P. Morgan and is responsible for the US beverage, home and personal care sectors. This year he was ranked among the most accurate analysts covering the segment.

However, despite the fact that there is likely to be a tangible increase in sales revenues, net profits are not expected to be significantly impacted. Faucher stated that this was down to the fact that commodity and material costs are not likely to be impacted in the same way as the bottom line.

Increasing moves to source both materials and ingredients from all over the world has meant that many of the leading global personal care players have spread their susceptibility to currency exchange fluctuations with regards production costs.

Faucher pointed out that this is also likely to be further compounded by the recent rise of bank rates, both in the US and Europe.

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