Colgate Rallies on Results, Price Hikes

Thursday, 26 January 2012 17:47 Written by Christina Rexrode

Colgate ups prices at home; first attempt in years

Colgate posts higher revenue and raises prices at home for first time in more than 2 years

AP by Christina Rexrode

NEW YORK (AP) -- Colgate-Palmolive, stung by higher costs, saw fourth-quarter net income decline more than 5 percent but said Thursday that it had raised prices in North America for the first time in two and a half years.

Raising prices has been risky for consumer products companies like Colgate, with cash-strapped consumers more ready than ever to drop even their favorite brands to save a few cents. Paychecks are already stretched thin and the government's most recent data on jobs, also released Thursday, show that the number of people seeking unemployment benefits rose last week

In recent months, Colgate has taken a pricing strategy that's differed from some of its competitors: It's been raising prices in fast-growing Latin America, where customers seem willing to stomach the higher costs, but lowering prices in North America through discounts and other promotions.

There are signs that the economy is healing, but raising prices in North America has been something that Colgate, until recently, has been unwilling to try.

Since the third quarter of 2009, Colgate has consistently cut North American prices, by an average of 1.5 percent to 4.5 percent each quarter. It has apparently snapped that trend, saying Thursday that it raised North American prices by 0.5 percent in the latest quarter.

That may be because the company thinks it can, or that it must, or perhaps a little bit of both. But Colgate is aggressively seeking to protect market share, even if it has to spend to do it.

"As we enter 2012, macroeconomic conditions and foreign exchange volatility are an increasing challenge," said President and CEO Ian Cook. "Despite that, we are planning to improve our worldwide market shares and volume growth with increased advertising."

For the quarter, Colgate made $590 million, or $1.21 per share. That was down from $624 million, or $1.24 per share, last year.

Excluding one-time expenses like putting cost-saving plans into place and other charges, Colgate earned $1.30 per share. That beat the $1.29 that Wall Street had been looking for, according to a poll by FactSet.

Revenue was $4.17 billion, up from $3.98 billion during the same period last year.

For the year, revenue increased 7.5 percent and net income rose 10 percent.

Shares of Colgate-Palmolive Co. rose more than 2 percent, or $2.04, to $91.48 in early trading.

The decision to try to recoup its margins comes during a fragile time for the U.S. economy.

The jobs data released Thursday show more people sought unemployment benefits. However, the overall trends point to a recovering job market. At least 100,000 jobs have been added for six straight months and the unemployment rate has declined to 8.5 percent, its lowest in almost three years.

But it's not a healthy number yet and the government also released data Thursday showing that fewer people bought new homes in December, sealing 2011 as the worst year for new home sales on record.

Colgate does have something of a buffer against hard times. Many customers will stick to things like name-brand toothpaste when money is tight, even if they do trade down in other products.

Overall, Colgate raised prices 3 percent, which helped fuel a 5 percent increase in revenue. But at the same time, the company recorded a 9 percent increase in the cost of making and transporting its goods. As Colgate paid more for raw materials, profit margins fell 1.7 percentage points.

The company has slashed some expenses to try to offset those costs.

"Our continued sharp focus on cost-saving programs in all areas of the business enabled us to achieve full year gross profit margin at the high end of our forecasted range, while also lowering overheads as a percentage of sales," Cook said.

And Colgate is increasingly relying on foreign markets to fuel growth. Of Colgate's four main geographic regions, North America accounts for the smallest portion and it is where revenue grew the slowest. Latin America grew the fastest, and made up the biggest portion of revenue.

Charges Weigh on Novartis Results; Revenues Beat

Wednesday, 25 January 2012 20:29 Written by STEN STOVALL

Novartis Cautious on Outlook as Profit Drops 46%.

WSJ By STEN STOVALL

Switzerland's Novartis AG on Wednesday said its profitability will decline this year because of competition from generic rivals, continued drug price cuts and the need to make further investments in innovative therapies.

The Swiss drug maker, which is trying to balance the sales decline stemming from the expiry of its blockbuster heart drug Diovan, issued the cautious earnings outlook for 2012 as it reported a 46% drop in fourth-quarter net profit, hit by restructuring costs, research and development write-offs, lower drug prices and the strong Swiss franc.

Kicking off the reporting season for European drug makers, Novartis said sales measured in constant currencies are expected to be in line with 2011, while core operating income margin is expected to be slightly below that achieved last year, despite recent restructurings and lucrative new drug launches.

"While productivity measures and margin improvements on products launched since 2007 are important contributions to improving profitability, they are not expected to fully offset the loss of margin from generic competition, price erosion, new investments necessary to sustain growth in new products and the impact of a delayed start-up of [the company's Lincoln, Nebraska consumer health facility.]," the drug maker said.

Novartis, which reports in dollars, has been continually cutting costs since Joe Jimenez took over the helm as chief executive in 2010. Mr. Jimenez on Wednesday said more cost savings of between $1.5 billion and $2.5 billion will be needed this year to keep the company on track.

He also said Novartis's multiple-sclerosis drug Gilenya is expected to remain a growth driver despite worries about the potential blockbuster's prospects after safety concerns were recently raised.

For the latest quarter, the Basel-based pharmaceuticals company recorded net charges totaling $1.5 billion, helping produce a steep decline in net profit for the three months to Dec. 31. It slumped to $1.18 billion from $2.17 billion a year-earlier, missing market forecasts of $1.76 billion.

Sales for the quarter beat views, rising 4.1% to $14.78 billion, helped by the full inclusion of eye care company Alcon. That revenue rise came despite the company's two blockbuster products, Diovan and cancer medicine Femara, being hit hard by generic competition. Analysts had forecast total net sales at $14.63 billion.

The market interpreted the company's news as negative overall, and sold Novartis shares, but analysts said the reaction would probably be short-lived.

Bank Sarasin analyst David Kaegi said the fourth-quarter sales and 2012 guidance were slightly better than expected. "It now only sees core operating profit 'slightly' below last year's level, and that is good news," he said.

Novartis shares in the European morning were down 2.1% at 50.90 Swiss francs ($54.87) in a slightly lower Swiss market.

The company's restructuring plans reflect troubles facing the whole pharma sector which, besides steep drug price cuts in Europe and the U.S., is also smarting from revenue declines due to drug patent expirations. Novartis is the world's second-largest pharmaceuticals company by sales behind Pfizer Inc.

Earlier this month the Swiss group said it will cut nearly 2,000 of its U.S. workforce and will take a $900 million charge after another of its key drugs, blood pressure medicine Rasilez, failed to live up to expectations. The changes are expected to take place in the second quarter of this year. That was in addition to some 2,000 job cuts—mostly in Switzerland and the U.S.—announced in October in a revamp whose costs were booked in the latest quarter.