World Crisis Online

L’Oreal SA, the world’s largest cosmetics maker, said acquisitions will be the priority for its 1.5 billion-euro ($2 billion) cash pile as it seeks to expand in a global market that may grow as much as 4 percent this year.

The maker of Maybelline make-up will look at transactions “that will offer the highest middle-term and long-term potential,” Chief Executive Officer Jean-Paul Agon said today at a presentation in Paris. L’Oreal considered all purchases that were made by competitors in 2010, he said.

“Our priority in the allocation of cash is for acquisitions, acquisitions, acquisitions and more acquisitions,” Agon said. Still, takeovers aren’t needed for L’Oreal to accelerate growth in new markets such as Brazil and China, he said.

L’Oreal has the capacity to spend as much as 20 billion euros on acquisitions, analysts at Exane BNP Paribas have said. The shares dropped as much as 5.7 percent today, the steepest intraday decline in a year, after fourth-quarter revenue trailed analyst estimates. Sales this year will rise at least 4 percent and L’Oreal is “confident” of outperforming the global market, which is likely to grow by a minimum of 3 percent, Agon said.

Revenue rose 4.1 percent in the last three months of 2010, excluding acquisitions and currency shifts, the maker of Garnier shampoo said late yesterday. That was below consensus estimates for growth of about 5 percent, said Simon Marshall-Lockyer, an analyst at Jefferies International Ltd. in London. Margins were also narrower than expected, he wrote said in a note to clients.

‘Little Light’ Full-year operating profit climbed to 3.06 billion euros from 2.58 billion euros, trailing the 3.09 billion-euro average estimate of 14 analysts compiled by Bloomberg. Sales rose 5.6 percent to 19.5 billion euros, excluding acquisitions and currency shifts, L’Oreal said.

“The results look a little light across the board,” Andrew Wood, an analyst at Sanford C. Bernstein in New York, said in a note. “We expect investors to be somewhat disappointed by the underlying operating momentum.”

Currency shifts and customer allowances hurt margins in 2010, particularly in the second half of the year, Chief Financial Officer Christian Mulliez said at the results presentation. Currency fluctuations should have no effect in 2011, based on an exchange rate of 1 euro to $1.36, he said.

Earnings before interest and taxes as a percentage of sales may widen in 2011, led by emerging markets, Mulliez said. Margin expansion won’t come at the expense of sales growth, the executive said. Working capital needs will increase to between 100 million euros and 200 million euros this year, Mulliez said.

New Markets L’Oreal has “no major concerns” on input costs in 2011 and is “very confident” of sales and profit growth, Agon said.

New markets, which account for nearly a third of total revenue, may become L’Oreal’s biggest sales region this year, replacing western Europe, Agon said. Growth will be strong in Asia Pacific, where demand for L’Oreal’s luxury products is outpacing the market, the CEO said. Overall sales growth in Latin America is accelerating, while there are “some difficulties” in eastern Europe, Agon said.

L’Oreal is aiming for 30 percent market share in Brazil this year, where the company’s sales reached 700 million euros in 2010, and will increase its presence in skincare and makeup in the country, Agon said. There are “no changes” in consumption patterns in new markets, the CEO said.

Nestle SA, which owns 29.77 percent of L’Oreal, and the Bettencourt family, which holds a 30.98 percent stake, are “stable” shareholders, Agon said.

The stock was down 3.91 euros, or 4.4 percent, at 85.59 euros as of 4:40 p.m. in Paris. UBS AG cut its recommendation on the shares to “neutral” from “buy.”