Investors and securities analysts want to know: Has Gillette lost its edge?

The company with globally popular brands such as Braun, Parker and Duracell, as well as shaving products, has been a dull performer this year on Wall Street. As its profits have weakened, its shares have fallen from $59.43 3/4 on March 31 to $33.93 3/4 yesterday.

Worried about the decline in Gillette's earnings, analysts are downgrading a stock that many investors until recently considered a classic growth play. According to First Call-Thomson, analysts have lowered their estimates for Gillette's full-year earnings to $1.24 a share from $1.26.

That despite assurances of Michael C. Hawley--named Gillette's chief executive eight months ago--that things are looking up in its overseas markets.

In fact, a day after Hawley's meeting with analysts Tuesday, when he warned that third-quarter sales would decrease by 1 percent, Gillette shares sank to a 52-week low.

"Gillette no longer meets the market expectations on earnings," said Robert M. Thornburg, senior research analyst at D.A. Davidson & Co. Result: a stock long rewarded with a forward price-to-earnings multiple of 40 or more now has a P/E of 28, based on expected 1999 earnings.

A company that derives more than half of its sales outside the United States, Gillette has been hit hard by the economic troubles in Asia, Latin America and Eastern Europe. While foreign sales grew 4 percent in 1997, they rose just 2 percent last year.

Gillette's Latin American sales were down 10 percent, partly because the company divested its stake in a local Brazilian venture. Spiraling interest rates in Brazil also prompted retailers to slash inventories.

To be fair to Gillette, it is not the only consumer products company affected by problems overseas. Coca-Cola Co., Procter & Gamble Co. and Goodyear Tire & Rubber Co. also have blamed weak overseas markets for earnings disappointments.

Razors, blades and batteries--which account for more than half of Gillette sales--did a brisk business in the United States, but were not a priority to consumers elsewhere, particularly those in hard-pressed areas, but also in Western Europe.

In addition, the company says that its toiletries, stationery and household appliances (Braun) businesses are underperforming. Toiletries sales were down from $1.4 billion in 1997 to $1.2 billion last year. Sales of stationery products (including Parker and Waterman brands) slipped from $924 million to $856 million.

Thus while Gillette's top line is weaker, its advertising, sales promotion, and research and development expenses are surging. "There have been new product launches, and the management has had to spend aggressively on these," said Thornburg.

Some analysts would like Gillette to jettison the laggards and focus on core products of shaving systems and batteries. Hawley has not responded to that idea.

Almost all Gillette brands are market leaders. The Mach3--a triple-blade razor launched in June 1997--has crossed the $1 billion sales mark, and premium toothbrush CrossAction also has been well received.

What's more, Gillette is a much more diversified company today than it was five years ago, when it did not have the battery business.

"The company has a solid, global portfolio of brands," said William Steele, managing director of Banc of America Securities. "There is an inordinate amount of pressure from Wall Street to meet some unrealistic expectations."

While it is unlikely that Gillette will surprise investors this year, analysts believe things will look up beginning in the second quarter of next year. For one, some of Gillette's key markets are on the mend. "A lot of bad news has already been factored in the stock price," said S&P Equity Group's industry analyst, Robert Izmirlian.

Now Gillette is seen by analysts as a long-term value stock. "For a consumer products company, Gillette still enjoys relatively high profit margins," Izmirlian said.

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