Strong dollar compounds sales woes at Colgate

A strong dollar and sluggish sales growth drove a sharp drop in quarterly profits at Colgate-Palmolive and the world’s biggest toothpaste maker warned the sales pressure has carried through to the current quarter.

Shares were marked down 4.4 per cent in pre-market trading.

“The third quarter was a challenging one with category growth rates remaining soft in many markets and unfavourable movements in foreign exchange,” said Ian Cook, chairman and chief executive.

Net sales fell 3.2 per cent to $3.84bn for the three months to end of September. Within this organic sales was down 0.5 per cent, the first decline the company recorded in years.

Net income dropped nearly 14 per cent to $523m however as gross profit margins fell 100 basis points to 59 per cent.

Like many big consumer goods companies, Colgate is being hit on all fronts. On one hand, higher freight, packaging and ingredient costs are squeezing margins while shifting consumer tastes — particularly in North America — meant established big household brands have been steadily losing ground to smaller and more health-conscious or eco-friendly start-ups.

But for Colgate, which generates nearly 75 per cent of its sales outside of North America, the strong greenback is heaping additional pain on its results with revenues earned abroad diminished when they are converted back into dollars.

The company said on Friday foreign exchange headwind shaved 4 per cent of its third quarter sales.

The impact of the strong dollar was particularly pronounced in Latin America. The region is one of Colgate’s biggest, accounting for over a fifth of total group revenue. During the third quarter, net sales fell 13 per cent largely as a result of rise in the greenback. Efforts to offset higher costs with higher prices also had an impact on demand. Although Colgate raised prices on its products in the region by 2.5 per cent, unit sales slid 6 per cent.

Colgate said the pressure has not abated in the current quarter and is now forecasting fourth quarter net sales to decline by low single-digit. However it said it was still expecting full-year earnings per share to increase by 3-4 per cent compared to 2017.

“As we look ahead, while uncertainty in global markets and category growth worldwide remain challenging, we are maintaining our heightened focus on brand building and increased productivity while accelerating our change efforts,” said Mr Cook.


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