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Sat, Dec 11, 2004 - Page 12 News List

Procter touts growth as Colgate laments fall

CONSUMER PRODUCTS While Procter & Gamble is confident of continued strong growth, Colgate-Palmolive plans to close a third of its factories in the next four years

NY TIMES NEWS SERVICE , NEW YORK

Procter & Gamble used a presentation for investors on Thursday to champion its recent performance, in sharp contrast to a gathering held this week by Colgate-Palmolive, which announced it was regrouping after disappointing results.

But beneath the surface the two companies share some similarities, both in the challenges they are confronting in the consumer products industry and the strategies they are using to surmount them.

Alan Lafley, Procter's chairman and chief executive, who has led the company's turnaround since taking the helm four years ago, said that his plan emphasizing "balanced growth" continues to work.

"We're confident we have the strategies, brands, innovation pipeline and new market opportunities to sustain strong growth," he said.

But even with top-line success, Procter said operating profit margins were expected to improve only "modestly," and it did not raise its quarterly or annual earnings goals.

Rising commodity costs led the company, meanwhile, to raise the price of some Folgers coffee products by 14 percent on Thursday. It has also raised prices about 5 percent on some tissue and pet food goods this year.

"We have made tough interventions that are needed to restore the health of our business," said Clayton Daley, Procter's chief financial officer, who did not rule out increases on more products.

Earlier in the week, Reuben Mark, Colgate's chairman and chief executive, expressed a similar determination to take action amid the sobering news of a sweeping reorganization.

During a conference call with investors on Tuesday, he said Colgate would close about one-third of its 78 factories and eliminate 12 percent of its work force worldwide over the next four years. The changes should help Colgate improve its profitability, and he said the company would devote much of the cost savings to increasing sales.

Investors appeared to like what both companies said. Shares of Procter climbed US$1.35, or 2.45 percent, on Thursday to US$56.38, while Colgate rose US$0.70, or 1.4 percent, to US$50.25.

The consumer products industry is entering a challenging period, however, and analysts say no company is immune. Price pressure is growing as retail giants like Wal-Mart push for low prices and carry cheaper private-label brands. Rising commodity prices add to production costs. On top of that, intense competition is causing companies to spend more on advertising just to retain the market share they already have.

"The market doesn't fully appreciate the challenges ahead," said William Steele, a household goods analyst for Banc of America Securities.

"Companies like to tap you on the shoulder before they slap you in the face, and Unilever and Colgate were tapping people on the shoulder when they issued profit warnings this fall," Steele said.

Even with its recent success, he said, Procter has been sacrificing some profit margin to maintain strong top-line growth.

Having improved their balance sheets and operations, the road ahead for Colgate and Procter is very much the same: trying to drive revenue growth by introducing innovative products and capturing new customers, particularly those in fast-growing markets like China, Latin America and Eastern Europe.

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