Financial outlook looks grim for cosmetic companies

By Simon Pitman

- Last updated on GMT

Related tags Personal care Stock market

Sliding share prices on the stock exchange and financial downgrades point to tougher times for the personal care industry as high commodity prices hit hard, experts say.

The latest prediction came from BMO Capital Markets - which has downgraded the US personal care and household sector to 'outperform', following a week when some of the biggest players were battered on the stock markets.

For prospective investors, financial experts believe that the time might be getting close for them to buy into the sector, but for existing shareholders the prospects seems less rosy as profits look set to plummet, followed by share dividends.

Commodity prices hit

In its financial briefing concerning the sector, BMO said the fact that commodity prices are set to rise still further means that further volatility for personal care companies on the stock markets may be 'prolonged'.

In particular, BMO cut the rating for Procter & Gamble, the world's largest consumer goods player, from 'market perform' to 'outperform', despite stressing the fact that the company might be less affected by commodity pricing pressures than other players.

On the stock market talk of acquisitions, personnel changes and the impact of lowered financial outlooks meant that Wall Street share prices suffered last week, with some of the biggest global players being effected.

Big company share values fall

Revlon shares fell 6.3 percent on Friday, while Estee Lauder's share prices fell 60 cents to $43.41.

Shares in Elizabeth Arden also slipped by 8 cents to $15.40, while shares in Avon Products fell by 16 cents to $36.21.

Although it was a tough week for the industry, one major underlying problem that is likely to have longer lasting repurcussions is the price of commodities, a factor that seems to be shaking the industry's foundations right now.

Oil prices add to pressures

Key to this is the price of oil, which is affecting every area of manufacturing, increasing prices of energy and transportation costs in particular.

Two weeks ago the price of oil hit record levels of around $145 a barrel but last week dropped below the $130 mark as fresh supplies helped to ease the pricing situation.

However, with many financial experts predicting that prices could exceed $200 a barrel by the end of the year, the outlook looks unsteady for the short- to mid-term.

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