Gillette stock dips 10% on profit warning

Company blames declining sales of shavers, toiletries, stationery

June 19, 1999|By BLOOMBERG NEWS

BOSTON -- Gillette Co. shares fell 10.8 percent yesterday after the company warned that profit would not meet analysts' forecasts this year because of declining sales of its Braun shavers, Papermate pens and Right Guard deodorant.

Gillette, the world's largest maker of razors and blades, fell $5.125 to $42.1875, its biggest one-day drop since a profit warning in April. The stock had the largest decline among companies in the Standard & Poor's 500 index.

Gillette said late Thursday that second-quarter profit will fall 20 percent to 26 cents to 27 cents a share, even as Procter & Gamble Co., Colgate-Palmolive Co. and other rivals will see gains of 10 percent or more. Analysts had expected 29 cents, according to First Call Corp. It earned 33 cents a year earlier.

While Gillette's year-old Mach3 razor is a hit, sales of its premium-priced appliances, pens and toiletries -- which generate a third of sales -- continue to slide. Gillette has warned about earnings for three of the past four quarters.

"Either they fix these peripheral businesses or they need to sell them," said analyst Ajay Mehra at Columbia Management, which owns 1.4 million shares. "It's very disappointing to us."

Gillette shares have fallen about a third since March 25, slashing $24.8 billion from their total value.

The Boston-based company said it was surprised by the degree of weakness in its Braun appliances such as electric shavers, Papermate pens and Gillette toiletries. The problem was centered in markets outside the United States and Western Europe that account for a third of revenue. A weak currency in Europe also hurt.

"Stationery, toiletries and Braun have dragged down this company's results for two years," said Carol Wilke, analyst with Prudential Securities, who rates the stock a hold. "Why are they still in those businesses? They just don't seem to believe the problems are dire, but I would bet that most other people would argue with that opinion."

About 30.2 million shares were traded, more than nine times the three-month daily average.

The company had its first decline in earnings in eight years in last year's third quarter because of heavy spending as it introduced Mach3. The costs of promoting Mach3's worldwide introduction continued to hurt profit in the latest quarter.

It also said profit is expected to rebound by a percentage increase in the "high single digits" in the third quarter and "in the mid-teens" in the fourth quarter, both less than forecast. Analysts had expected a 17 percent gain in the third quarter and a 18 percent gain in the fourth quarter.

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