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Bear of the Day: Colgate-Palmolive (CL)

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Colgate-Palmolive (CL - Free Report) is a leading global consumer products company that focuses on oral care, personal care, home care, and pet nutrition. Colgate, which still holds 42% of the global toothpaste market, has some of the biggest brand names in its portfolio, including Colgate, Palmolive, Softsoap, Irish Spring, Tom’s of Maine, and Murphy’s Oil Soap.

Shares of Colgate-Palmolive have slumped about 16% since January, and lower-than-expected results in its third-quarter earnings report didn’t much help the stock.

Overall, Q3 was challenging for CL, with soft category growth rates across the company’s various markets.

Earnings of 72 cents per share matched the Zacks Consensus Estimate, but is down 1% from the price-year quarter.

Revenues fell 3% to $3.85 billion, missing our consensus estimate. Volume sales were flat during the period, and organic sales slipped 0.5%. Top line growth was also affected by trade inventory reductions in China and volatility in Brazil.

Adjusted gross margin also fell, down 120 basis points to 59.2% due to higher raw material and packaging costs. Adjusted operating margin was down 190 basis points.

CEO Ian Cook was disappointed in the results, saying “The third quarter was a challenging one with category growth rates remaining soft in many markets and unfavorable movements in foreign exchange."

It didn’t take long for analysts to lower their estimates for fiscal 2018, and nine have slashed their earnings outlook in the last 60 days; our consensus has fallen 6 cents from $3.02 to $2.96. But, earnings could grow around 3% for this time period.

The consensus estimate has fallen for next fiscal year, too, down 17 cents from $3.22 to $3.05 per share. Nine analysts have also cut their estimates for this time period as well.

CL is a Zacks Rank #5 (Strong Sell).

Looking ahead, Cook said he does still see some of the same challenges for Q4, but noted uncertainty in the global markets. Colgate-Palmolive anticipates a low-single-digit organic sales increase, but lowered adjusted earnings guidance just a bit from mid-single-digit growth to 3%-4%.

If you’re an investor looking for a similar consumer staples stock pick to add to your portfolio, you may want to consider Church & Dwight Co. (CHD - Free Report) , owner of the Arm & Hammer baking soda brand. This cleaning materials company is a #2 (Buy) on the Zacks Rank, and currently expects 17.5% earnings growth for the year.

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