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Euro Warning Sends Gillette to 4-Year Low

September 19, 2000|Bloomberg News

Razor giant Gillette Co., which in the spring had some Wall Street analysts hopeful that the business outlook was improving after more than two years of disappointments, has tripped again.

The company saw its stock fall Monday to a four-year low after warning that third-quarter sales will be stagnant because of the euro's decline in value.

The currency's 18% fall in the past year will cut sales by 6%, led by Braun appliances and batteries, Gillette Chief Financial Officer Charles Cramb said.

Analysts had forecast sales to rise 3% to 4% in the quarter from $2.51 billion last year.

The stock (G) slid $2.19 to $27.63.

This is the second time since May that Gillette has said the euro would hurt sales. The company, which gets almost two-thirds of its revenue overseas, usually doesn't hedge against currency changes because it's "very expensive," spokesman Eric Kraus said.

Gillette makes Mach3 razors and other goods worldwide so costs and sales are priced in the same currency, Kraus said.

But some investors are livid. "It's unbelievable," said Henry Asher, president of the Northstar Group, which holds Gillette shares. "They should have been able to mute the impact of foreign exchange."

"Every quarter, there is another problem," Asher said. "The businesses other than blades have done poorly."

Gillette is the third company in the last week to say that the euro will hurt its results.

Colgate-Palmolive Co. shares fell 16% Thursday after analysts said the world's largest toothpaste maker told them sales will rise less than expected because of the falling euro.

McDonald's Corp. also said last week that the euro will hurt the fast-food restaurant company's profit. Investors drove the stock to a 52-week low after the news.

Sales of Gillette's Duracell batteries also will fall because of increased competition in North America, Cramb said on a conference call with analysts that was broadcast over the Internet. Duracell sales tumbled in the first half because of less demand in China and South Korea.

Third-quarter profit at the world's largest maker of razors and blades now is expected to be about 33 cents a share, down from the 34 cents a share that was analysts' average estimate before the announcement.

In last year's third quarter Gillette earned 32 cents a share.

Gillette expects to meet fourth-quarter earnings estimates, even with currencies at current levels, because of lower costs, said Cramb. Fourth-quarter sales will rise by a "low- to mid-single-digit" percentage, he said.

"We are continuing to drive costs down," Cramb said.

But Gillette's falling stock price could make it takeover bait, some investors said.

Colgate-Palmolive, the world's largest toothpaste company, may be interested in buying Gillette, Goldman, Sachs & Co. analyst Amy Low Chasen wrote in a report in June.

"It's a great franchise at a distressed price," said Fredric Russell, president of Fredric E. Russell Investment Management Co., which owns Gillette shares.

"At some point, shareholders are going to put pressure on management" to sell, he said.

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