In This Article:
Colgate-Palmolive Company CL has been gaining from its sturdy business strategies, including pricing, innovation and productivity efforts. The company’s shareholder-friendly moves are also quite encouraging.
Shares of this key consumer products’ dealer have gained 21.3% in the year-to-date period, outperforming the Zacks Soap and Cleaning Materials industry’s 18% growth and the broader Consumer Staples sector’s 8.9% rise.
Let’s Analyze Colgate’s Core Strengths
Colgate’s innovation strategy concentrates on growing in adjacent categories and product segments. The company is 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. Also, at-home whitening and professional whitening products bode well. Its Oral Care business has also been performing well.
The company has revamped its innovation model, leveraged global strength across price tiers and invested in marketing and capabilities, all of which lead to solid brand health and household penetration. Colgate has been gaining from strong pricing and the benefits of funding-the-growth program and other productivity initiatives. In the third quarter of 2024, pricing improved 3.1% year over year, backed by positive pricing across all divisions, except for North America.
Bold pricing actions and accelerated revenue-growth management plans have been bolstering Colgate’s organic sales. On an organic basis, the company’s sales advanced 6.8%, backed by growth in five of the six divisions. The rise in organic sales was led by double-digit growth in oral care for the fourth consecutive time in the reported quarter.
Such initiatives have been driving Colgate’s margins as well. During the third quarter, adjusted gross margin expanded 270 basis points (bps) while adjusted operating profit margin increased 50 bps year over year on higher gross margin.
For 2024, management forecasts gross profit margin expansion on an adjusted basis, driven by continued pricing gains, benefits from revenue-growth management initiatives and strength in the funding-the-growth program. CL expects the Base Business’ earnings per share (EPS) to increase 10-11% year over year.
Image Source: Zacks Investment Research
Hindrance to Colgate’s Growth Path
Colgate has been witnessing inflationary pressures and a challenging macroeconomic environment for quite some time now. Raw material inflation and continued rise in packaging also act as deterrents to the company’s profitability. Higher adjusted selling, general and administrative (SG&A) and advertising expenses remain concerning.
Management expects continued advertising investment for the rest of the year, primarily focused on brand-building and scaling capabilities. Management anticipates higher advertising costs for 2024, both on a dollar basis and as a percentage of sales. Unfavorable foreign currency fluctuations are also hurting the company’s performance. The sales view for 2024 includes a mid-single-digit negative impact of currency.