Publish date:

Update: Gillette Tumbles 7% After Warning

The company blamed the continued weakness of European currencies.

Updated from 11:55 a.m. EDT

Shares of

Gillette

(G) - Get Report

dropped Monday after the company warned that its third-quarter earnings would likely be lower than expected because of flat sales it blamed in part on the continued weakness of European currencies.

The Boston-based company said overall sales growth would have been about 6% this quarter, which ends this month, but the gains were offset by the effects of the currency exchange rates. In a conference call, Gillette's chief financial officer and senior vice president for finance, Charles Cramb, said Gillette also continues to suffer from sluggish sales of its battery products in North America.

Shares of Gillette finished Monday regular trading down $2.19, or 7%, to close at a 52-week low of $27.63.

Though Gillette is probably best known for its shaving products, it also manufactures Duracell batteries, toiletries, and writing utensils. According to

Hoover's Online

, Gillette derives about 60% of its revenue from outside the U.S. and manufactures its products in 20 countries, making it particularly vulnerable to currency fluctuations

TST Recommends

Cramb said the sharp drop in the value of Europe's new single currency has had a tremendous impact on Gillette's dollar-reported results. The euro has depreciated about 11% since the start of the quarter, setting a new all-time low of about 85 cents late last week. Gillette sales growth was also hurt by the sharp decline in the value of the British pound and the Australian dollar -- both of which are worth about 15% less against the dollar compared to a year ago, he said.

Cramb said Gillette was unable to offset the devaluation with straight pricing action in Europe, but was able to cut costs internally. He added that the company opted not to cut its advertising budget, in order to protect the long-term health of the business, and he assured analysts that all its core products have received "adequate advertising and promotional support."

Gillette does plan to increase advertising in its battery division to improve sales of its Duracell products in North America, where the brand has been unable to regain market share lost to competing brands like Energizer.

The company said it hopes to improve domestic battery sales in the fourth quarter with the introduction of the Duracell Ultra high-tech alkaline battery, the addition of more in-store displays, and the launch of an aggressive consumer sampling campaign.

"It's not going to happen overnight," warned Cramb, but added that he expects some gains in Duracell's North American market share as early as the fourth quarter.

Cramb said he expects overall sales growth in the low- to mid-single digits for the fourth quarter, adding that the company should meet Wall Street's fourth-quarter earnings estimates.

Analysts surveyed by

First Call/Thomson Financial

had forecast earnings of about 34 cents per share in the third quarter, and 36 cents per share in the fourth quarter.

In response to repeated questions about the effect of continued depreciation among European currencies, Cramb added, "The real question is, what can we do to overcome it? The answer is, we can continue to drive costs down."