Both Announce Plans to Step Up Marketing Spending

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CINCINNATI ( -- Package-goods giants Unilever and Colgate-Palmolive Co. issued profit warnings early yesterday, blaming increased marketing spending among other factors for broadly missing their earnings forecasts. But both companies promised stepped-up marketing spending.

P&G pressure
The marketers are under pressure from Procter & Gamble Co., which, by contrast, earlier this month stood by its forecast for sales growth of 4% to 6% and earnings growth in the low double digits this quarter.

But Unilever and Colgate signaled P&G will face a fierce marketing battle ahead. Rather than cut marketing spending to make their year-end earnings numbers, as some analysts have accused the companies of doing in the past, both companies said they will maintain or step up plans for marketing support through the end of 2004.

Black Monday
It was a "Black Monday" for the P&G rivals, as Colgate shares fell 11% to $48.26 in early-morning trading, with Unilever trading down 6.7% to $32.71. But P&G and others in the industry also felt the pain, with shares of P&G, Gillette and Kimberly-Clark Corp. all down by 2.5% or more as well.

Unilever and Colgate will miss their earnings marks substantially. Unilever lowered full-year 2004 earnings guidance from low-double-digit growth to low single digits. Colgate said earnings per share for the third and fourth quarters would be in the 57- to 59-cent range, 11% to 14% below analysts' estimates for the current quarter and 14% to 17% below estimates for the fourth quarter.

Leading brands decline
Unilever acknowledged it will fall well below the 5% to 6% sales growth it predicted its leading brands would achieve in this final year of its five-year "Path to Growth" restructuring and said sales of leading brands will actually decline this quarter compared to year ago.

Unilever blamed substantially lower sales of ice cream and ready-to-drink tea due to poor weather in Northern Europe, weak consumer confidence combined with competitive and retail issues for home and personal care in Western Europe and intense competition in laundry and hair-care markets in Asia, primarily vs. P&G. Results in the rest of the business, including the U.S., "is broadly in line with expectation," Unilever said in a statement.

In contrast, Colgate said sales are up strongly, but blamed a combination of higher raw-material and packing costs combined with a commitment to stick with aggressive marketing plans for the earnings disappointment. Colgate said sales would be up 7% in the third quarter, and, in a conference call, Chairman-CEO Reuben Mark said the company's U.S. oral-care volumes were up 14% in the U.S.

Global spending
Colgate's total marketing spending globally will be up by mid-double digits through the second half of 2004 over last year, with media spending rising faster than promotion, Mr. Mark said. Colgate's media spending will rise both absolutely and as a percentage of sales, he said.

In a statement, Mr. Mark said, "It is vital that we maintain the aggressive commercial spending to build market share and blunt competitive efforts." He added that Colgate will step up cost cuts in other areas of the business to fuel more marketing spending in 2005 and beyond.

In Unilever's conference call, Co-Chairman Patrick Cescau said stepped-up marketing spending, which will include price reductions, would be concentrated in the European and Asian markets, where competition has been most intense and results most disappointing.

But Chief Financial Officer Rudy Markham said Unilever also would step up marketing spending in the U.S. in the fourth quarter -- a stark contrast to last year, when Unilever cut media spending amid disappointing results.

Though he did not offer specifics, Unilever will begin launch of one of its major hair-care initiatives -- Dove styling aids -- in December, according to retail buyers, rather than waiting until January, as it has in years past.

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