UPDATE 2-Colgate-Palmolive lowers profit view as dollar gains

Thu Jul 25, 2013 3:40pm EDT

* Second-quarter earnings fall, sales rise

* Earnings, excluding items, in line with estimates

* Shares up 1.6 percent

By Jessica Wohl

July 25 (Reuters) - Colgate-Palmolive Co cut its 2013 profit forecast due to the stronger dollar as it posted a lower second-quarter net profit on Thursday, citing restructuring and other charges.

The toothpaste maker's earnings, excluding items, were in line with Wall Street's expectations, despite slightly weaker-than-anticipated sales growth.

Still, New York-based Colgate said its sales and margins should keep rising this year as it promotes new products such as Colgate Sensitive SmartFoam with Whitening toothpaste.

Its shares were up 1.6 percent at $59.47.

A strong dollar represents a double whammy for U.S.-based companies like Colgate. The company generates most of its sales outside the United States. So when those overseas revenues are brought home and translated into dollars, the U.S. currency's strength reduces their bookable value and results in lower reported earnings.

The higher dollar also increases production costs versus foreign rivals, making U.S. products less competitive in international markets.

Colgate's rivals such as Procter & Gamble Co also have vast international businesses, including in Europe where economic pressure persists. On Monday, Kimberly-Clark Corp said the stronger U.S. dollar may hurt its results more than it previously expected.

Also on Thursday, Europe's Unilever posted weaker-than-anticipated quarterly sales growth, and said growth in emerging markets was slowing.

Colgate's organic sales, which strip out the effects of foreign exchange fluctuations, acquisitions and divestitures, rose 5.5 percent, with the biggest gains in North America, Asia and Africa, and a jump at its Hill's pet food business as it brought out new pet foods.

In Latin America, its biggest market by far, Colgate continued to be hurt by the impact of February's devaluation of the Venezuelan bolivar. That contributed to a 1.5 percent net sales decrease in Latin America and a lower operating profit there.

Organic sales in Latin America, rose 7 percent, after rising 9 percent in the first quarter. That growth slowed less than feared, said JP Morgan analyst John Faucher.

For U.S. companies that do business in Venezuela, the devaluation meant their earnings in bolivars were worth less when converted back to dollars.

The U.S. dollar strengthened against foreign currencies in the last four to six weeks of the quarter, leading Colgate to cut its 2013 earnings guidance by 1 percentage point. Colgate now expects earnings per share to rise 4.5 percent to 5.5 percent for the year.

Venezuela accounts for about 5 percent of Colgate's total sales. The company warned earlier this year that the devaluation would trim earnings each quarter, as it translates its financial statements at the newer exchange rate.

P&G, the world's largest household products maker, cited volatility in Venezuela and elsewhere in April when it said that its profit would fall more than Wall Street was anticipating. It is due to post its quarterly results on Aug. 1.

Colgate's sales in Europe and the South Pacific fell 3 percent, due to factors such as lower prices and sales declines in France and Greece.

Colgate expects limited growth in Europe for the "foreseeable future," Chairman and Chief Executive Ian Cook said on a conference call.

Second-quarter net income fell to $561 million, or 60 cents per share, from $627 million, or 65 cents per share, a year earlier. Excluding 10 cents per share in after-tax charges, Colgate earned 70 cents per share, in line with analysts' estimates, according to Thomson Reuters I/B/E/S.

Sales rose 1.9 percent to $4.35 billion, less than the $4.39 billion that analysts expected. Unfavorable foreign exchange lowered sales by 3 percentage points. Pricing rose 1 percent.

Colgate still expects its gross profit margin to improve by 0.3 to 0.7 percentage points this year, Cook said on the call.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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