Colgate 1Q net rises 61% but margins fall

NEW YORK: Consumer-goods giant Colgate-Palmolive Co.'s net income soared 61 percent in the first quarter, the company reported Thursday. But under that buoyant figure, Colgate is feeling the squeeze of higher costs for fuel and other raw materials.

And that's an almost-sure sign that its customers are going to see higher prices as well.

Colgate indicated that it had already raised prices in stores this year and would continue to do so, but it didn't give details. Asked by an analyst to elaborate on the price increases the company already has implemented, CEO Ian Cook said that disclosing that information would be "competitively unhelpful and also take too long."

New York-based Colgate-Palmolive, best known for its toothpaste and dish soap, finds itself in the same quandary as consumer companies of all stripes. Materials like wood pulp and fuel, which they need to make and transport their goods, are getting more expensive, and the companies want to pass along those increases to customers. Two of Colgate's main rivals, Procter & Gamble Co. and Kimberly-Clark Corp., said this week that they would raise prices on products like diapers and paper towels by 3 percent to 7 percent.

But it's a delicate calculus: If consumer product makers raise prices too much, they'll drive away their customers, who are already suffering from rising prices for gas and groceries. And Colgate already raised its prices about 6 percent after the last spike in gas prices in 2008.

In a call with analysts, Cook dryly noted the commodity cost increases "that we have all enjoyed" but did not specify how the company would set prices.

"Frankly, the situation - and the answer - is probably more complex and broader than simple algorithms," Cook said.

"We are unafraid, after taking the right analysis, to take pricing on the right businesses at the right time," he added later.

He said Colgate had modeled its business plans for oil to rise as high as $110 a barrel. Thursday, it hit nearly $113.

Colgate has fared relatively well throughout the recession, but now it needs to maintain its momentum as the economic lethargy drags on. Part of what has sustained it is consumers' tendency, even in a financial crisis, to keep buying their favorite brands of toothpaste and soap.

The company upped its advertising spending over the quarter in the hope of luring recession-weary customers, and it said it plans to keep it up. It has also held onto customers by offering promotional discounts, though Cook said those discounts were becoming less effective as a business strategy.

First-quarter net income rose to $576 million, or $1.16 per share, in line with expectations of analysts polled by FactSet. That's up from $357 million, or 69 cents per share, a year earlier, when Colgate recorded a big charge tied to the devaluation of Venezuela's currency, which diluted its holdings there.

First-quarter revenue rose 4.3 percent to $3.99 billion, which topped analysts' expectations of $3.96 billion.

Cook said the company will continue to cut costs, through moves like layoffs and shared service centers. It's also looking for growth in emerging markets, which now represent more than half of its revenue. Sales fell in North America and the U.K. but grew in Venezuela, Argentina and Central America, China, India, South Africa and Turkey. Cook noted that the company had seen a slowdown in Russia, which wasn't expected.

The company also highlighted sales growth in its Hill's pet food division. "In the main, pet owners give their pets the same if not more affection than they give their children," Cook said, "which leads to good growth." - AP

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