July 30, 2009 / 11:23 AM / 10 years ago

UPDATE 4-Colgate's pet food sales drop, shares skid

* Q2 EPS $1.07 vs Wall St view $1.05

* Q2 sales fell 5.5 pct to $3.75 bln vs St view $3.78 bln

* Comfortable with Wall Street’s profit views for Q3

* No price increases planned for remainder of 2009

* Shares fall as much as 5.2 pct (Adds comments from conference call, updates stock activity)

By Jessica Wohl

CHICAGO, July 30 (Reuters) - Colgate-Palmolive Co (CL.N) said on Thursday that second-quarter revenue fell more than expected, weighed down by declines in its high-end Hill’s pet food division, and its shares slid 5 percent.

Still, Colgate’s quarterly profit topped estimates as cost cuts and a 7.5 percent increase in prices helped offset the revenue drop and the stronger U.S. dollar.

“The stock has had a great run, and we think it will take a bit of a breather today,” JP Morgan analyst John Faucher said in a note to clients. Colgate shares fell as low as $71.73, wiping out gains from the past two weeks.

The maker of toothpaste, dish soap and other household goods also said it was comfortable with analysts’ profit expectations for the current third quarter and full year.

Analysts expressed the most concern for the Hill’s business, which accounts for 14 percent of Colgate’s total sales.

“We overshot a bit in the second quarter,” Chief Executive Ian Cook said of pricing in the Hill’s segment, which sells dog and cat food in specialty stores and veterinary offices.

Hill’s raised prices last year and again in the first quarter of 2009 to offset higher costs. Competitors decided not to match the most recent increase and gained share, Cook said.

Colgate has been less squeezed than larger rival Procter & Gamble Co (PG.N) in recent months, since it does not compete in categories such as paper products and diapers that have felt the most pressure from lower-priced store brands.

Based on Colgate’s comments about pet food rivals grabbing business, it appears P&G may have gained share with its Iams and Eukanuba brands. P&G reports its results next week. Its shares were up 1 percent at $56.66 on the New York Stock Exchange.

SALES DOWN, PROFIT UP

Colgate’s second-quarter sales fell 5.5 percent to $3.75 billion, weighed down by the stronger U.S. dollar, which cuts into the value of international revenue. Analysts, on average, had expected $3.78 billion, according to Reuters Estimates.

The volume of goods sold fell 1.5 percent. JP Morgan’s Faucher had anticipated that volume would be flat.

Profit climbed to $561.6 million, or $1.07 per share, from $493.8 million, or 92 cents per share, a year earlier. Analysts, on average, had expected $1.05 per share.

Sales in North America, which account for one-fifth of the total, rose 2.5 percent. Volume increased at the same rate. Sales in Latin America, Colgate’s largest market, fell 1.5 percent, pressured by currencies. Volume rose 2 percent.

At Hill’s, sales fell 3 percent and volume dropped 11.5 percent. BMO Capital Markets analyst Connie Maneaty had forecast a 4 percent volume increase at Hill’s.

In last year’s second quarter, Hill’s sales jumped 19.5 percent, aided by an 8 percent price increase, and volume rose 6 percent.

Colgate does not plan to raise any more prices this year across its portfolio, Cook said. He did say that Hill’s is selectively changing some prices, but did not elaborate on how much prices might come down.

Overall, volume — including at Hill’s — is “off to a good start,” with a faster start in the first month of the third quarter than Colgate saw in the start of the first and second quarters, Cook said.

Colgate spent more on advertising in the second quarter than in the first, but those costs fell as a percentage of sales from a year earlier, as media rates declined and it reduced spending to better match up with what competitors were doing.

Colgate has seen rates fall 5 percent to 25 percent across the 80 countries in which it advertises, Cook said.

Colgate is comfortable with analysts’ profit forecasts for the third quarter and the year. Analysts, on average, expect it to earn $1.09 per share this quarter and $4.25 this year.

Colgate’s shares fell 5.1 percent to $71.96 in afternoon trading on Thursday. Through Wednesday, Colgate shares had climbed 10.7 percent this year, while P&G had fallen 9.2 percent. (Reporting by Jessica Wohl; Editing by Lisa Von Ahn and Gerald E. McCormick)

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