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Here's How Colgate (CL) Stock is Poised Amid Cost Headwinds
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Colgate-Palmolive Company (CL - Free Report) remains on track to deliver growth in the long run, banking on its robust business strategies and sound fundamentals. The company has been gaining from pricing actions, investments in premium innovation and digital transformation.
Driven by these factors, it delivered fourth-quarter 2021 results, wherein both top and bottom lines rose year over year. Management highlighted that the company witnessed strong momentum across its businesses, particularly oral care and pet nutrition categories. Higher pricing and stable volume also aided the quarterly results. Adjusted earnings of 79 cents per share rose nearly 3% year over year. Net sales grew 1.8% year over year, while organic sales advanced 3%. This marked the 12th successive quarter of organic sales growth.
The Zacks Consensus Estimate for the company’s current financial year’s sales and earnings suggests growth of 3% and 3.7%, respectively, from the year-ago period’s reported numbers. The positive trend signifies bullish analyst sentiments.
Strategies Driving the Momentum
Colgate remains focused on the premiumization of its Oral Care portfolio through major innovations. Backed by premium innovation, products including CO. by Colgate, Colgate Elixir toothpaste and Colgate enzyme whitening toothpaste have been performing well. This led to mid-single-digit organic sales growth in its oral care business in the fourth quarter.
Some other notable innovation efforts include Colgate Renewal in the United States, Colgate Enzyme Whitening toothpaste in China, and the natural extracts line and Colgate Total Anti-Tartar Line in Latin America. The continued expansion of the Naturals and Therapeutics divisions, the Hello Products LLC buyout, and the launch of electric toothbrushes in Latin America in collaboration with Philips also bode well.
The company is aggressively expanding the geographic footprint of its brands along with enhanced distribution to faster growth channels. It has expanded its portfolio by introducing pharmacy brands like elmex and meridol to newer markets. Its professional skincare businesses — Elta MD and PCA Skin — are performing well in spas and dermatology clinics. Colgate also expanded its premium skincare portfolio with the buyout of the Filorga skincare business. It is gaining from strong market share gains in North America and China, its two largest markets, with increased share gains across all other regions.
Colgate’s Hill's business continues to witness momentum with sales growth of 12% in the fourth quarter and a 13% rise in organic sales, driven by strength in Hill's Prescription Diet and Hill's Science Diet. The company’s newly launched Prescription Diet Derm Complete has been gaining market share and is likely to be rolled out internationally in the coming quarters.
Consequently, management anticipates 2022 net sales growth of 1-4%, with organic sales growth of 3-5%. Colgate expects gross margin expansion on both GAAP and adjusted basis. The company anticipates earnings growth in double-digits on a GAAP basis. On an adjusted basis, earnings are expected to reflect low to mid-single-digit growth.
Hurdles to Overcome
The company has been witnessing elevated advertising investments, which have been hurting margins. In fourth-quarter 2021, Colgate’s adjusted gross profit margin of 58.1% contracted 300 basis points (bps) from the prior-year quarter. Adjusted operating profit declined 3% year over year, while the adjusted operating margin contracted 110 bps to 21.3%.
Also, raw material cost inflation had a 670-bps impact on the gross margin in the fourth quarter of 2021. Ongoing supply-chain disruptions along with a rise in raw material and logistics costs act as deterrents. Management expects these headwinds to persist in the forthcoming quarters. Also, headwinds related to raw material are likely to be pronounced in first-quarter 2022.
We note that the stock has declined 13% year to date against the industry’s growth of 10.4%.
Image Source: Zacks Investment Research
Bottom Line
We believe that Colgate’s strategic efforts, including product innovation and expansion plans will help offset cost headwinds. All said, a VGM Score of B and a long-term earnings growth rate of 6.3% raise optimism on this Zacks Rank #3 (Hold) stock.
The Zacks Consensus Estimate for Albertsons Companies’ current financial-year sales suggests growth of 1.6% from the year-ago period’s reported figure, while the same for EPS indicates a decline of 9%.
Flower Foods currently has a Zacks Rank #2 (Buy). FLO has a trailing four-quarter earnings surprise of 9%, on average.
The Zacks Consensus Estimate for Flower Foods’ current financial-year sales and earnings suggests growth of 7.2% and 4%, respectively, from the year-ago period’s figures.
Inter Parfums currently has a Zacks Rank #2. IPAR has a trailing four-quarter earnings surprise of 29.7%, on average.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and EPS suggests growth of 63.2% and 117.4%, respectively, from the year-ago period’s reported figures.
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Here's How Colgate (CL) Stock is Poised Amid Cost Headwinds
Colgate-Palmolive Company (CL - Free Report) remains on track to deliver growth in the long run, banking on its robust business strategies and sound fundamentals. The company has been gaining from pricing actions, investments in premium innovation and digital transformation.
Driven by these factors, it delivered fourth-quarter 2021 results, wherein both top and bottom lines rose year over year. Management highlighted that the company witnessed strong momentum across its businesses, particularly oral care and pet nutrition categories. Higher pricing and stable volume also aided the quarterly results. Adjusted earnings of 79 cents per share rose nearly 3% year over year. Net sales grew 1.8% year over year, while organic sales advanced 3%. This marked the 12th successive quarter of organic sales growth.
The Zacks Consensus Estimate for the company’s current financial year’s sales and earnings suggests growth of 3% and 3.7%, respectively, from the year-ago period’s reported numbers. The positive trend signifies bullish analyst sentiments.
Strategies Driving the Momentum
Colgate remains focused on the premiumization of its Oral Care portfolio through major innovations. Backed by premium innovation, products including CO. by Colgate, Colgate Elixir toothpaste and Colgate enzyme whitening toothpaste have been performing well. This led to mid-single-digit organic sales growth in its oral care business in the fourth quarter.
Some other notable innovation efforts include Colgate Renewal in the United States, Colgate Enzyme Whitening toothpaste in China, and the natural extracts line and Colgate Total Anti-Tartar Line in Latin America. The continued expansion of the Naturals and Therapeutics divisions, the Hello Products LLC buyout, and the launch of electric toothbrushes in Latin America in collaboration with Philips also bode well.
The company is aggressively expanding the geographic footprint of its brands along with enhanced distribution to faster growth channels. It has expanded its portfolio by introducing pharmacy brands like elmex and meridol to newer markets. Its professional skincare businesses — Elta MD and PCA Skin — are performing well in spas and dermatology clinics. Colgate also expanded its premium skincare portfolio with the buyout of the Filorga skincare business. It is gaining from strong market share gains in North America and China, its two largest markets, with increased share gains across all other regions.
Colgate’s Hill's business continues to witness momentum with sales growth of 12% in the fourth quarter and a 13% rise in organic sales, driven by strength in Hill's Prescription Diet and Hill's Science Diet. The company’s newly launched Prescription Diet Derm Complete has been gaining market share and is likely to be rolled out internationally in the coming quarters.
Consequently, management anticipates 2022 net sales growth of 1-4%, with organic sales growth of 3-5%. Colgate expects gross margin expansion on both GAAP and adjusted basis. The company anticipates earnings growth in double-digits on a GAAP basis. On an adjusted basis, earnings are expected to reflect low to mid-single-digit growth.
Hurdles to Overcome
The company has been witnessing elevated advertising investments, which have been hurting margins. In fourth-quarter 2021, Colgate’s adjusted gross profit margin of 58.1% contracted 300 basis points (bps) from the prior-year quarter. Adjusted operating profit declined 3% year over year, while the adjusted operating margin contracted 110 bps to 21.3%.
Also, raw material cost inflation had a 670-bps impact on the gross margin in the fourth quarter of 2021. Ongoing supply-chain disruptions along with a rise in raw material and logistics costs act as deterrents. Management expects these headwinds to persist in the forthcoming quarters. Also, headwinds related to raw material are likely to be pronounced in first-quarter 2022.
We note that the stock has declined 13% year to date against the industry’s growth of 10.4%.
Image Source: Zacks Investment Research
Bottom Line
We believe that Colgate’s strategic efforts, including product innovation and expansion plans will help offset cost headwinds. All said, a VGM Score of B and a long-term earnings growth rate of 6.3% raise optimism on this Zacks Rank #3 (Hold) stock.
How Other Stocks Fared
Some better-ranked stocks in the Consumer Staples sector are Inter Parfums (IPAR - Free Report) , Albertsons Companies (ACI - Free Report) and Flower Foods (FLO - Free Report) .
Albertsons Companies currently sports a Zacks Rank #1 (Strong Buy). ACI has a trailing four-quarter earnings surprise of 31.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Albertsons Companies’ current financial-year sales suggests growth of 1.6% from the year-ago period’s reported figure, while the same for EPS indicates a decline of 9%.
Flower Foods currently has a Zacks Rank #2 (Buy). FLO has a trailing four-quarter earnings surprise of 9%, on average.
The Zacks Consensus Estimate for Flower Foods’ current financial-year sales and earnings suggests growth of 7.2% and 4%, respectively, from the year-ago period’s figures.
Inter Parfums currently has a Zacks Rank #2. IPAR has a trailing four-quarter earnings surprise of 29.7%, on average.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and EPS suggests growth of 63.2% and 117.4%, respectively, from the year-ago period’s reported figures.