L’Oreal Shares Fall as Sales Miss Estimates on North America

L’Oreal SA slid in Paris trading after the world’s largest cosmetics maker reported sales that missed analysts’ estimates amid the weakest performance in North America since 2009.

Revenue fell 0.8 percent to 5.48 billion euros ($7.5 billion), Paris-based L’Oreal said yesterday after markets closed. Analysts predicted 5.56 billion euros, according to the average of 10 estimates compiled by Bloomberg. Sales climbed 4.1 percent, excluding currency shifts and acquisitions, less than the average prediction for 4.9 percent growth.

“We feared a weak quarter, but this is weaker than expected,” said Eamonn Ferry, an analyst at Exane BNP Paribas in London. “North America is the trouble spot.”

L’Oreal shares retreated as much as 2.6 percent to 124.1 euros. They were down 1.7 percent to 125.20 as of 10:02 a.m., the second-biggest drop in the French benchmark CAC 40 Index.

L’Oreal gets about a quarter of revenue from North America, where a market slowdown and inventory reductions by distributors exceeded company expectations. Like-for-like sales growth in the region slowed to 0.6 percent in the third quarter from 4.5 percent in the previous three months, the worst performance since the fourth quarter of 2009 when sales fell 0.8 percent.

In addition to the market slowdown and destocking, growth in North America may have been affected by “strong promotional activities by some of L’Oreal’s competitors,” said Andrew Wood, an analyst at Sanford C. Bernstein in New York.

Procter & Gamble Co., the Cincinnati-based maker of Gucci fragrances and Pantene Pro-V shampoos, last week reported 2 percent organic revenue growth in the U.S.

‘Some Uncertainties’

While the U.S. market has barely grown in the past four weeks, “we don’t think it will last,” Chief Executive Officer Jean-Paul Agon said on a call with analysts. “Things will rebalance themselves, but for the moment it’s a slow period.”

L’Oreal remains confident of outperforming the global beauty market in 2013 as well as improving sales, results and profitability, financial communications director Thierry Prevot said on a call with reporters. The global beauty market will expand closer to 3.5 percent than 4 percent in 2013 as sales slow in the second half of the year, Prevot said, citing a previous estimated range for growth.

“The economic context remains subject to some uncertainties about the market trend and to the negative impact of currencies,” Agon said in the statement, while confirming the company’s full-year targets.

Currency Impact

The weakness of currencies such as the dollar, Brazilian real, Japanese yen, Indian rupee and Argentinian peso against the euro reduced sales by 6 percent in the third quarter and 3.1 percent in the nine months through Sept. 30, the company said.

Unfavorable currency fluctuations will have a negative 3.6 percent impact on full-year revenue, L’Oreal Chief Financial Officer Christian Mulliez said in August.

L’Oreal joins European companies including brewer Heineken NV and Adidas AG that have said earnings will be affected by the strength of the euro. The currency has gained 4.3 percent against the dollar so far this year.