L'Oreal shares dive after dismal sales

22nd April 2005, Comments 0 comments

PARIS, April 22 (AFP) - Shares in L'Oreal, the world's leading cosmetics company, plunged in early trading Friday, after a surprise decline in European markets brought the group's first-quarter sales sharply below market expectations.

PARIS, April 22 (AFP) - Shares in L'Oreal, the world's leading cosmetics company, plunged in early trading Friday, after a surprise decline in European markets brought the group's first-quarter sales sharply below market expectations.

L'Oreal was down 5.16 percent at 56.10 euros in heavy trading, while the CAC 40 index was up 0.58 percent at 3,973.84 points.

The French group reported late Thursday a 3.1 percent rise in sales in the first quarter to EUR 3.539 billion (USD 4.624 billion) on a like-for-like basis, assuming comparable structure and constant exchange rates.

The results missed forecasts for EUR 3.873-3.916 billion, according to analysts polled by AFX News, the AFP financial news service.

First-quarter like-for-like sales in western Europe slipped 3.0 percent, while sales in North America were up 7.8 percent.

Furthermore, the group said that for 2005 as a whole, sales growth would be similar to the 6.2 percent like-for-like growth last year.

The results prompted a raft of negative brokerage comment and downgrades.

"A momentous miss of first-quarter expectations, combined with a lack of visibility on 2005 earnings, confirms our view that L'Oreal faces its most challenging year yet," said JP Morgan, who cut its rating on the stock to 'underweight' from 'neutral.'

Weak consumer spending in Europe, coupled with a destocking trend, was blamed as the cause of the sales decline, as several analysts noted that markets in the United States, Asia and elsewhere remain strong.

"The disappointment is all the greater as management had announced a sharp acceleration of mass-market products sales in the fourth quarter 2004," said analysts at Fideuram Wargny, who also downgraded L'Oreal on the news, to 'reduce' from 'buy.'

Fears of a marked slowdown in full-year earnings will guarantee a difficult inaugural year for Jean-Paul Agon, set to replace chief executive Lindsay Owen-Jones - who has overseen years of constant growth - at the group's annual general shareholders meeting this month.

"Assuming that L'Oreal achieved identical sales growth in 2005 to that of 2004, then this means the next three quarters will need to register organic growth close to 7.2 percent. Given a toughening comparison basis, this is challenging," said analysts at Deutsche Bank, who have kept their 'hold' rating on the stock.

© AFP

Subject: French News

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