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Toiletries maker Lion's profit bitten by petrochemical prices

Gains in toothbrush and mouthwash sales offset by packaging costs

Lion's new Nonio mouthwash was a hit, helping to steady the decline in profit.

TOKYO -- Japanese consumer products maker Lion enjoyed robust sales but appears to have been hit by higher prices on a key petrochemical raw material in the first six months of the year, resulting in its first decline in interim profit from core operations in six years.

Segment profit -- or gross profit minus selling, general and administrative costs -- likely slumped 10% on the year to just over 11 billion yen ($99.3 million) for the January-June period. The company is reporting that figure for the first time after adopting International Financial Reporting Standards this fiscal year. 

Sales likely rose 3% to around 168 billion yen. Toothbrushes that Lion says help prevent gum diseases sparked strong demand in Malaysia, Thailand and other parts of Southeast Asia. In industrial products, additives for automotive tires sold well.

The consumer products business in Japan apparently saw sales -- which account for some 60% of the total tally -- remain flat. Sales slid 2% in the first quarter as Lion stopped offering spray-on antiperspirants this fiscal year and pressure increased for price cuts on laundry detergents.

But this likely was offset by robust demand for oral-care products, such as toothbrushes with compact heads that help reach molars, and the Nonio mouthwashes launched last year that the company says fight bad breath. In pharmaceutical products, updated fever relief products, painkillers and eye drops posted growth.

The drop in segment profit is chiefly blamed on rising prices for naphtha, which Lion uses for detergents and containers. The petroleum distillate went for around $620 a ton on average in the first six months of the year, up about 30% from a year earlier, raising manufacturing costs. Segment earnings were also eroded by higher personnel costs as the company increased its workforce to accommodate production expansion.

But segment profit is estimated to have slightly topped Lion's earlier forecast of 11 billion yen, thanks to stronger-than-expected sales of oral-care products with high added value.

Lion is expected to keep its full-year projection intact when it releases the interim results on Aug. 3. Sales are forecast to expand 4% to 355 billion yen, while segment profit is seen inching up 1% to 29 billion yen. Net profit is projected to climb 20% to 25 billion yen for a third straight year of record highs, buoyed by proceeds from land sales in Japan and Taiwan.

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