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Avon and Estee Lauder lower expectations

By Simon Pitman , 22-Sep-2005

Reflecting economic uncertainties both Avon and Estee Lauder have reduced their earnings expectations for financial year. The continued rise in oil price is hitting manufacturing costs, while the resulting economic uncertainty is giving many businesses the jitters.

Estee Lauder said that it expects currency translation to negatively impact sales results by approximately 1 per cent, while expenses relating to closures and over-stocking are expected to hit the bottom line by up to 10 per cent.

Equally, Avon said it was lowering its 2005 earning projections due to an unexpected shortfall in all of its four sales regions. It went on to say that the US market would be particularly affected in the wake of Hurricane Katrina and higher oil prices.

As a result, the company has lowered its earnings projection by as much 16 per cent, although it said that revenue would increase in mid-single digit figures.

The announcements are early signs that cosmetics manufacturers are in for a rough storm, as economic conditions continue to look doubtful.

Rising costs are also expected to be a major factor affecting manufacturers' results over the next few months. Both on the ingredients and packaging materials front, a number of major players have announced price hikes due to rising costs.

Philadelphia Rohm and Haas, which supplies both chemicals and packaging materials used in cosmetic and toiletry manufacturing announced that it was raising its prices across the board, citing Hurricane Katrina as a contributing factor.

The packaging industry has already warned its customers to expect big price hikes in the coming months, as companies are forced to pass on their added manufacturing costs.

Packaging accounts for about 10 per cent of a product's cost, according to a report by KPMG.

Last week the Packaging and Industrial Films Association (PIFA) and Flexible Packaging Association (FPA) warned its customers to expect price hikes due to the rapid escalation in the cost of gas and electricity, and the rise in the price of polymers over the past two months.

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