Colgate Ups Prices At Home; First Attempt In Years

Published January 26, 2012 3:54PM (EST)

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 homes in December, sealing 2011 as the worst year for 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.

By Salon Staff

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