L’Oreal SA (OR), the world’s biggest cosmetics maker, is losing share in mass-market makeup in western Europe as growth stalls in its biggest market amid austerity measures in the region’s south.
Portugal, Italy, Greece and Spain cost the Paris-based company one point of growth in the third quarter, leaving it “cautious” for the rest of 2011, Chief Executive Officer Jean- Paul Agon said today on a conference call. Sales in the three months through September rose 1.8 percent to 4.94 billion euros ($6.79 billion), in line with analysts’ estimates.
The fourth quarter will continue in the “same vein” as the third, Agon said, confirming the Maybelline maker’s full- year targets. L’Oreal’s growth trails that of New York-based rival Estee Lauder Cos., which said last week that recent economic uncertainty hadn’t significantly affected its business after quarterly sales rose 18 percent.
“We are tackling the last quarter with confidence” even though the situation remains difficult in southern Europe, Agon said in a statement.
L’Oreal’s 2011 sales will advance faster than the global cosmetics market as the maker of Kiehl’s lip gloss benefits from higher demand for luxury products in Asia. Profit will also rise this year, he confirmed. The global market is growing a little over 4 percent, Agon said on the call with analysts, adding that he expects similar market growth next year.
Sales at the consumer-products division, L’Oreal’s largest source of revenue, rose 3.4 percent excluding currency shifts and acquisitions, slowing from the 5.2 percent pace in the first half. The unit is gaining market share in North America, while the situation is gradually returning to normal in eastern Europe, L’Oreal said.
Revenue rose 1.1 percent on that basis in western Europe, where the company generates more than a third of its sales. Sales advanced 4.6 percent in North America and 8.8 percent in so-called new markets, led by the Asia Pacific region.
Like-for-like sales declined 1.5 percent in eastern Europe. “In the dismal economic context, which has left no country unscathed, consumer confidence is weak and markets are proving difficult,” L’Oreal said, referring to the region.
“Management’s description of these results as good is stretching matters,” Andrew Wood, an analyst at Sanford C. Bernstein in New York, wrote in a note to clients. He has an “underperform” rating on the stock. “We wonder how long investors will be prepared to give L’Oreal its elevated valuations given such relatively lackluster results.”
L’Oreal retreated 0.5 percent in Paris trading today, giving the maker of Maybelline make-up and Garnier deodorant a market value of 46.6 billion euros. L’Oreal trades at 18.2 times estimated earnings. Procter & Gamble Co., maker of Max Factor, trades at about 15 times estimated earnings.
L’Oreal’s biggest shareholders are the Bettencourt family, which owned 30.9 percent at the end of 2010, and Nestle SA, which had 29.7 percent. Liliane Bettencourt, 89, is mentally unfit, a French judge said last month in a ruling that turned over management of her interests to her daughter and grandsons.
Comparable sales at the professional products division, which supplies treatments including Inoa hair colorant to beauty salons, rose 2.6 percent. Europe and the U.S. are “sluggish markets” for the category, L’Oreal said.
Comparable sales at the luxury unit, whose products include Yves Saint Laurent and Giorgio Armani fragrances, climbed 8.8 percent. The increase reflects a “dynamic retail sales trend” amid the launch of new products such as Biotherm’s Skin Vivo Uniformity anti-aging line, the company said.
Active cosmetics sales gained 5.4 percent with La Roche Posay sun care maintaining its momentum across all markets, L’Oreal said. Body Shop revenue increased 2.4 percent as it introduced Extra Virgin Minerals foundations and extended travel retail to more than 40 countries. The dermatology division’s sales gained 8.1 percent, L’Oreal said.
To contact the editor responsible for this story: Celeste Perri at firstname.lastname@example.org