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Latin America helps Colgate, Avon during U.S. slump

Display of Colgate toothpaste is seen on store shelf in Westminster
Display of Colgate toothpaste is seen on store shelf in Westminster

By Jessica Wohl

CHICAGO (Reuters) - Big gains in Latin America covered up U.S. declines at Colgate-Palmolive Co and Avon Products Inc , as growth in the largest market for both U.S. companies offset slumps back at home.

Sales at Colgate, best known for its namesake toothpaste, rose 17 percent in Latin America and fell 3 percent in North America.

At Avon, the world's largest direct seller of cosmetics, revenue rose 19 percent in Latin America and fell 7 percent in North America.

"Neither of these is pretty," said Sanford Bernstein analyst Ali Dibadj, who has "neutral" ratings on both companies' shares. "I'd argue Avon is worse, but Avon is also viewed as much cheaper."

Avon trades at about 13.4 times expected earnings, below Colgate's multiple of 16.8, according to Reuters data on Thursday morning.

Shares of Avon were down 1.1 percent in early trading, while Colgate rose 0.1 percent to $85.61.

Two years after the recession officially ended, U.S. shoppers are still pausing before spending more on items like updated toothpastes and the latest lipsticks as food and gasoline prices have risen.

So household product makers including Colgate and Avon, both based in New York, have steadily been working on the international businesses that make up the bulk of their sales.

The North American market is only worth roughly 18 percent of sales at both Avon and Colgate, excluding the latter company's Hill's pet food unit. Latin America, meanwhile, accounts for 47.2 percent of revenue for Avon and 29 percent for Colgate.

Dibadj suggested that Avon consider leaving the United States, where he said it is not making any money and has not shown improvement for some time.

"Unfortunately for Avon, the direct selling model at the low end of the market, which is where they are, is somewhat irrelevant to the U.S. consumer," he said. "Somebody else could probably run the U.S. better than they can."

Latin America was not the key to growth for all companies, however. Revlon Inc's sales rose about 9 percent in the United States, but dipped in Latin America due to declines in countries such as Mexico and Venezuela.

COLGATE JUST TOPS; AVON JUST MISSES

Colgate earned $622 million, or $1.26 per share, in the second quarter, up from $603 million, or $1.17 per share, a year earlier.

The results beat the analysts' average estimate by 1 cent per share, according to Thomson Reuters I/B/E/S.

Sales rose 9.7 percent to $4.19 billion, while analysts had expected $4.18 billion.

"Latin America was a little bit of the savior," said Dibadj.

Avon earned $206.2 million, or 47 cents per share, up from $167.6 million, or 39 cents per share, a year earlier. Excluding the impact of restructuring costs, earnings were 49 cents per share, 1 cent below Wall Street's average forecast.

Revenue rose 9 percent to $2.86 billion, missing analysts' estimates of $2.89 billion.

"Basically, everywhere except for Latin America was below our expectations," said Dibadj. "It's yet another ugly quarter for Avon."

Avon's strength in Latin America came after the company shook up its management in February, leaving the region without a leader, at least for now. After posting disappointing fourth-quarter results in markets such as Brazil, Avon said it would look outside its walls for a Latin American chief. It has made no announcement on that post yet.

In North America, Avon's revenue fell 7 percent. The number of active representatives selling its goods declined 8 percent, the number of items sold dropped 16 percent and operating profit plunged 31 percent.

"Stabilizing the U.S., short of turning it around, is key to restore investor confidence," and the second quarter doesn't suggest Avon is anywhere near that point, said Weeden & Co analyst Javier Escalante.

(Additional reporting by Arpita Mukherjee in Bangalore; editing by Lisa Von Ahn)

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