Colgate-Palmolive Co., maker of Colgate toothpaste and Ajax cleansers, said Wednesday that it will close plants, lay off workers and sell some subsidiaries--moves that will reduce pretax earnings by $211 million and trigger a third-quarter loss.
The shake-up is part of an ongoing campaign by Colgate President Reuben Mark to boost productivity and cut costs in response to greater competition and changes in the industry. Rival consumer product companies--like Procter & Gamble, which announced an $800-million restructuring in June--have been undergoing similar changes.
"It makes for a faster moving and more efficient place," said consumer products consultant Gordon Wade, who, like other industry officials, applauded Colgate's announcement. "You have to be able to move much more quickly--you have to adopt a guerrilla warfare mentality."
On the New York Stock Exchange, Colgate shares closed at $47.50, up 12.5 cents.
Colgate--which also makes Fab detergent, Ultra Brite toothpastes, Irish Spring and Palmolive soaps, and Curad bandages, said it will lay off 600 of its 38,000 employees in factory and corporate positions during the next several years.
The company, which will also streamline operations at 24 plants and offices, will close six plants, which it would not disclose. The workers at those sites have not been notified of the pending closures, company officials said.
In California, Colgate's only major facility is a Kendall McGaw plant in Irvine, which makes intravenous feeding products. Company officials declined to say whether the plant is one of those to be closed or streamlined.
Colgate will also sell two fabric-making units of its Kendall subsidiary for about $200 million as part of plans to focus on household, personal and health-care products.
"These organizational steps position Colgate to improve the management of our global businesses," said Mark, who has been company president for three years. "In addition to pushing decision making down and improving the coordination of our technical functions, this program will result in very substantial savings." Analysts estimated that the changes will boost profit by 14 cents a share next year.
Trimming costs has become a major concern at consumer products companies, says securities analyst Hercules A. Segalas at Drexel Burnham Lambert. "The name of the game is for you to be the low-cost supplier."
During the past 20 years, consumer companies have watched as the mass market they catered to has fragmented into groups, each with its own price and style preferences. Sales have slowed in the face of a slower-growing population, forcing companies to steal competitors' customers in order to grow. And retailers--with the help of computers--have become better able to gauge which products are selling well and which need to be dropped.
All these factors have forced companies to adapt and evolve, Wade said. If the environment changes and "you happen to be an animal, you die or grow a tail," he said. "If you're a corporation, you restructure."