Analyst predicts tough quarter for US personal care companies

By Simon Pitman

- Last updated on GMT

Related tags United states dollar

With the threat of a second global recession hovering in the wings, a Citi Investment analyst says there are concerns over the Q4 performance of US personal care players.

Earlier this week the Citi Investment analyst, Wendy Nicholson, downgraded her rating for US personal care giants Colgate-Palmolive and Kimberly-Clark, provoking shares in many of the leading consumer goods players to fall on the US stock exchange.

Nicholson took the decision to downgrade both Colgate-Palmolive and Kimberly-Clark from ‘buy’ to ‘hold’ on Wednesday.

Currency translation is likely to impact results

In an analyst note, Nicholson cited the fact that in more recent years the performance of consumers goods companies in the US has been relatively poor in Q4, a phenomenon that is likely to be exacerbated by the fact that that the US dollar is currently strengthening against world currencies.

Although the US dollar fell in 2010 by an average of 2 percent, providing a boost to US exports, so far in 2011 the currency has strengthened by an average of 1 percent fuelled by growing uncertainty over the global economy.

Many of the bigger US personal care players, including Colgate-Palmolive, Kimberly-Clark and Procter & Gamble have been increasingly relying on revenues from overseas trade, and particularly from growth in emerging economies.

Currency translation likely to impact emerging market revenues

Booming sales in these markets has in turn helped to buoy stagnating or declining sales in the domestic market, as well as in Europe.

However, as the US dollar weakens, the gains made in markets such as Brazil, China and India are likely to be pinned back due to unfavorable currency translations.

Most of the leading US players have reported a slow down in their financial results so far in 2011, with Procter & Gamble CEO predicting that sales in developed markets, including the US, Europe and Japan, will continue to slow towards the end of 2011 under the economic uncertainty.

Related topics Business & Financial