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Colgate (CL) Looks Solid on Pricing Action & Expansion Strategy
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Colgate-Palmolive Company (CL - Free Report) is well-poised for the long term on innovation, brand strength and digital capabilities. The company continues to gain from its stringent pricing actions and accelerated revenue growth management plans. Revenue growth management initiatives led to double-digit pricing gains worldwide in the first quarter of 2023. This led to impressive organic sales growth in the quarter.
On an organic basis, Colgate’s sales advanced 10% in the first quarter, with improvements in all divisions and categories. This marked the 17th successive quarter of organic sales growth at or above its long-term target of 3-5% growth. While volumes remained soft, pricing gains of 12% aided organic sales. Bold pricing actions and accelerated revenue growth management plans were key drivers.
Colgate remains on track with its efforts to improve product availability through enhanced distribution to newer markets and channels. However, the company is not immune to higher raw material and logistics costs worldwide and unfavorable currency issues.
Shares of Colgate have risen 3.4% in the past three months compared with the industry’s growth of 1.9% and the Consumer Staples sector’s rise of 1.6%.
The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) company’s current financial-year sales and earnings suggests growth of 6.4% and 5.7% from the year-ago reported numbers.
Image Source: Zacks Investment Research
What’s Working Well for CL?
Expanding the availability of products through enhanced distribution to newer markets and channels is one of Colgate’s priorities to improve organic sales. The company is aggressively expanding into faster growth channels while extending the geographic footprint of its brands.
In 2019, Colgate expanded its portfolio by introducing pharmacy brands like elmex and meridol to newer markets. It remains impressed with the performance of professional skincare businesses — Elta MD and PCA Skin — in spas and dermatologists.
The company expanded its premium skincare portfolio with the buyout of the Filorga skincare business. Colgate is witnessing strong market share gains in North America and China, its two largest markets, with increased share gains across all other regions.
Innovation and in-store implementation have been the guiding principles for Colgate’s growth strategy over the years. CL’s innovation strategy is focused on growing in adjacent categories and product segments. It is also 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.
Its innovation efforts are highlighted by the continued expansion of the Naturals and Therapeutics divisions and the Hello Products LLC buyout. The company also partnered with Philips to introduce electric toothbrushes in Latin America, where the use of electric toothbrushes is low. This long-term deal will bring together the world’s number one oral care brand and the number one manufacturer of sonic toothbrushes under a co-brand, namely Philips Colgate. This product line will come with a variety of electric toothbrushes at different prices.
Colgate’s Hill's business has been a major contributor to sales growth for the past few quarters. The segment reported sales growth of 21.5% in the first quarter, with organic sales growth of 14%. Results gained from an 11.5% increase in pricing, volume growth of 12% on a reported basis and 2.5% on an organic volume basis, partly offset by a 2% adverse currency impact. Organic sales were aided by gains in the United States and Europe.
Strength in oral care and pet nutrition remains a key growth driver. 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. Colgate also remains focused on expanding the availability of its products through the e-commerce channel as more consumers are using online services for their essential needs.
Management raised its sales and profit forecast for 2023. Colgate-Palmolive anticipates net sales growth of 3-6%. The current projection indicates gains from the acquisitions of pet food businesses, offset by a low-single-digit adverse currency impact.
The company anticipates full-year organic sales growth between 4% and 6%. CL foresees adjusted gross profit margin expansion and increased advertising investments. Management guided mid-single-digit growth in adjusted earnings per share.
Hurdles to Overcome
Despite sales growth, the company has been witnessing continued pressure from raw and packaging material costs, which dented the gross margin performance in the first quarter of 2023. This includes an adverse impact of 90 bps from private-label sales resulting from the previously disclosed acquisitions of pet food businesses.
Colgate’s gross profit margin contracted 160 basis points bps to 56.9% on a GAAP and adjusted basis. Additionally, the adverse foreign currency impact is likely to affect the company’s profitability in the near term.
Stocks to Consider
Some better-ranked stocks from the broader Consumer Staples space are Coty Inc. (COTY - Free Report) , Procter & Gamble (PG - Free Report) and Clorox (CLX - Free Report) .
Coty currently sports a Zacks Rank of 1 (Strong Buy) and has an expected long-term earnings growth rate of 15.6%. COTY has a trailing four-quarter earnings surprise of 145%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for COTY’s current financial-year sales and earnings suggests growth of 3.1% and 89.3%, respectively, from the prior-year reported numbers. The consensus mark for COTY’s earnings per share has moved up by a penny in the past seven days.
Procter & Gamble currently has a Zacks Rank #2 (Buy) and has an expected long-term earnings growth rate of 6.1%. PG has a trailing four-quarter earnings surprise of 1.02%, on average.
The Zacks Consensus Estimate for Procter & Gamble’s current financial-year sales and earnings per share suggests growth of 1.5% and 0.9%, respectively, from the year-ago reported numbers. The consensus mark for PG’s earnings per share has been unchanged in the past 30 days.
Clorox currently carries a Zacks Rank #2. CLX has a trailing four-quarter earnings surprise of 25.5%, on average. The company has an expected long-term earnings growth rate of 12.5%.
The Zacks Consensus Estimate for Clorox’s current financial-year sales and earnings suggests growth of 2% and 9%, respectively, from the year-ago reported numbers. The consensus mark for CLX’s earnings per share has moved up 0.7% in the past 30 days.
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Colgate (CL) Looks Solid on Pricing Action & Expansion Strategy
Colgate-Palmolive Company (CL - Free Report) is well-poised for the long term on innovation, brand strength and digital capabilities. The company continues to gain from its stringent pricing actions and accelerated revenue growth management plans. Revenue growth management initiatives led to double-digit pricing gains worldwide in the first quarter of 2023. This led to impressive organic sales growth in the quarter.
On an organic basis, Colgate’s sales advanced 10% in the first quarter, with improvements in all divisions and categories. This marked the 17th successive quarter of organic sales growth at or above its long-term target of 3-5% growth. While volumes remained soft, pricing gains of 12% aided organic sales. Bold pricing actions and accelerated revenue growth management plans were key drivers.
Colgate remains on track with its efforts to improve product availability through enhanced distribution to newer markets and channels. However, the company is not immune to higher raw material and logistics costs worldwide and unfavorable currency issues.
Shares of Colgate have risen 3.4% in the past three months compared with the industry’s growth of 1.9% and the Consumer Staples sector’s rise of 1.6%.
The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) company’s current financial-year sales and earnings suggests growth of 6.4% and 5.7% from the year-ago reported numbers.
Image Source: Zacks Investment Research
What’s Working Well for CL?
Expanding the availability of products through enhanced distribution to newer markets and channels is one of Colgate’s priorities to improve organic sales. The company is aggressively expanding into faster growth channels while extending the geographic footprint of its brands.
In 2019, Colgate expanded its portfolio by introducing pharmacy brands like elmex and meridol to newer markets. It remains impressed with the performance of professional skincare businesses — Elta MD and PCA Skin — in spas and dermatologists.
The company expanded its premium skincare portfolio with the buyout of the Filorga skincare business. Colgate is witnessing strong market share gains in North America and China, its two largest markets, with increased share gains across all other regions.
Innovation and in-store implementation have been the guiding principles for Colgate’s growth strategy over the years. CL’s innovation strategy is focused on growing in adjacent categories and product segments. It is also 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.
Its innovation efforts are highlighted by the continued expansion of the Naturals and Therapeutics divisions and the Hello Products LLC buyout. The company also partnered with Philips to introduce electric toothbrushes in Latin America, where the use of electric toothbrushes is low. This long-term deal will bring together the world’s number one oral care brand and the number one manufacturer of sonic toothbrushes under a co-brand, namely Philips Colgate. This product line will come with a variety of electric toothbrushes at different prices.
Colgate’s Hill's business has been a major contributor to sales growth for the past few quarters. The segment reported sales growth of 21.5% in the first quarter, with organic sales growth of 14%. Results gained from an 11.5% increase in pricing, volume growth of 12% on a reported basis and 2.5% on an organic volume basis, partly offset by a 2% adverse currency impact. Organic sales were aided by gains in the United States and Europe.
Strength in oral care and pet nutrition remains a key growth driver. 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. Colgate also remains focused on expanding the availability of its products through the e-commerce channel as more consumers are using online services for their essential needs.
Management raised its sales and profit forecast for 2023. Colgate-Palmolive anticipates net sales growth of 3-6%. The current projection indicates gains from the acquisitions of pet food businesses, offset by a low-single-digit adverse currency impact.
The company anticipates full-year organic sales growth between 4% and 6%. CL foresees adjusted gross profit margin expansion and increased advertising investments. Management guided mid-single-digit growth in adjusted earnings per share.
Hurdles to Overcome
Despite sales growth, the company has been witnessing continued pressure from raw and packaging material costs, which dented the gross margin performance in the first quarter of 2023. This includes an adverse impact of 90 bps from private-label sales resulting from the previously disclosed acquisitions of pet food businesses.
Colgate’s gross profit margin contracted 160 basis points bps to 56.9% on a GAAP and adjusted basis. Additionally, the adverse foreign currency impact is likely to affect the company’s profitability in the near term.
Stocks to Consider
Some better-ranked stocks from the broader Consumer Staples space are Coty Inc. (COTY - Free Report) , Procter & Gamble (PG - Free Report) and Clorox (CLX - Free Report) .
Coty currently sports a Zacks Rank of 1 (Strong Buy) and has an expected long-term earnings growth rate of 15.6%. COTY has a trailing four-quarter earnings surprise of 145%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for COTY’s current financial-year sales and earnings suggests growth of 3.1% and 89.3%, respectively, from the prior-year reported numbers. The consensus mark for COTY’s earnings per share has moved up by a penny in the past seven days.
Procter & Gamble currently has a Zacks Rank #2 (Buy) and has an expected long-term earnings growth rate of 6.1%. PG has a trailing four-quarter earnings surprise of 1.02%, on average.
The Zacks Consensus Estimate for Procter & Gamble’s current financial-year sales and earnings per share suggests growth of 1.5% and 0.9%, respectively, from the year-ago reported numbers. The consensus mark for PG’s earnings per share has been unchanged in the past 30 days.
Clorox currently carries a Zacks Rank #2. CLX has a trailing four-quarter earnings surprise of 25.5%, on average. The company has an expected long-term earnings growth rate of 12.5%.
The Zacks Consensus Estimate for Clorox’s current financial-year sales and earnings suggests growth of 2% and 9%, respectively, from the year-ago reported numbers. The consensus mark for CLX’s earnings per share has moved up 0.7% in the past 30 days.