Colgate-Palmolive Earnings: Volume Growth a Concern
Colgate-Palmolive (NYSE:CL), the world leader in oral care, is expected to come out with Q2 earnings on July 28th. We’re on the watch for how volumes have fared in the last quarter. We expressed our concerns in the past regarding Colgate’s volume-driven growth strategy amid rising costs in our Q1, which showed low volume growth despite higher advertising and promotional spending. See Colgate Volumes Disappoint, Concern On Pricing Persist. Colgate competes with other leading personal care companies such as Procter & Gamble (NYSE:PG), Unilever (NYSE:UL) and Kimberly-Clark (NYSE:KMB).
We value Colgate-Palmolive with a $85.80 Trefis price estimate of its stock, which is roughly in line to its current market price.
Volumes Disappointed in Q1
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Colgate-Palmolive closed 2010 with 3% volume growth at flat pricing. The company decided to stand pat on pricing while other leading players such as P&G and Unilever withdrew promotional pricing and actually raised prices to combat rising commodity prices.
While the total sales grew by 4.5% in the quarter-ending March 31st compared to the same period last year, about 3% of this growth was due to favorable foreign exchange impacts. Volume grew by only about 2% and was partially offset by a decrease in net selling prices of 0.5% resulting in 1.5% organic sales. Compare this to 2010 where the first quarter sales grew by 9.5% with 6% organic growth and clearly sales have slowed year over year. We are closely watching if this has picked up at all.
Is North American Doing Any Better?
Colgate’s North American operations make up over a quarter of its total sales and had perhaps the most dismal performance in the first quarter. The promotional pricing led to a decline in average net selling price by 4% and instead of rising, volumes declined by almost 1%. This led to a 5% decline in organic sales in Q1 vs. a 1.5% increase in organic sales for the same period in 2010.