Exclusive: Fitch sees consumer goods recovery in 2010

CHICAGO (Reuters) - U.S. household product makers should see sales tick up next year, with international growth driving the likes of Colgate-Palmolive Co (CL.N) and Avon Products Inc (AVP.N), a Fitch Ratings director said on Monday.

The household products and personal-care industry saw revenue climb every year from 2003 to 2008. This year, revenue is expected to decline modestly after the economic downturn forced consumers across the globe to rethink everyday purchases such as tissues, shampoo and lipstick.

"Next year this industry will finally go back to normal, which is to have positive top line growth," Fitch Ratings Director Grace Barnett told Reuters ahead of the release of Fitch's sector report on Wednesday.

Avon, Colgate, Alberto Culver Co ACV.N, Clorox Co (CLX.N), Kimberly-Clark Corp (KMB.N), Procter & Gamble Co (PG.N) and Church & Dwight Co Inc (CHD.N) should see revenue grow about 5 percent in 2010, and that growth could be stronger if the dollar continued to weaken, she said.

In the past, the stronger U.S. dollar cut into the value of international revenue, particularly for companies such as Colgate and Avon that derive the majority of their sales from outside their home country.

"Those two companies certainly will get the big benefit as it kind of turns around," she said, as both derive 75 percent or more of their revenue from international markets.

Colgate's third-quarter profit topped expectations as a small rise in revenue was slightly more than analysts had anticipated. Avon's profit also came in ahead of forecasts even though weakness in North America meant revenue fell short.

Shares of Colgate have climbed nearly 19 percent so far this year, while Avon's shares have soared 46 percent. The S&P Household & Personal Products Industry Group index .GSPHHPE has climbed just 6.8 percent over the same period.

Emerging markets such as Brazil, Russia, India and China should be the biggest drivers for the sector, Barnett said. Fitch expects those BRIC markets to post 6.5 percent GDP growth in 2010 after rising 3.7 percent in 2009.

FILL-IN ACQUISITIONS

Deals could also resume but no blockbusters are expected.

"There will be more people looking at acquisitions, mostly sort of fill-in, and they can certainly support it from their cash flow situation," she said.

"There are some who can actually do fairly sizable ones without really having to be too concerned," Barnett said, citing companies such as Alberto Culver, with a lot of cash and no debt, and Colgate, which has the flexibility to take on a little bit more debt without its ratings changing.

While the overall industry is stable, Barnett is a bit more concerned about Avon, the only household products and personal care company which she has a negative outlook on. Despite its "A" rating, Avon has little free cash flow and less financial flexibility than peers, she said.

Clorox, P&G and others say they will bring out new products next year, but have been silent on details. The industry has increased advertising and promotions as they try to win back shoppers, without resorting to cutting prices.

With products such as toilet paper, tissues and trash bags, companies such as Kimberly-Clark and Clorox will still feel pressure from private label products unless they bring out innovative items that push consumers back to brands, she said.

Commodity prices are likely to rise modestly in 2010 but manufacturers will not likely need to raise prices as they have cut costs and will benefit from increased revenue, she said.

(Reporting by Jessica Wohl; Editing by Tim Dobbyn)