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Investment Overview for Colgate-Palmolive (NYSE:CL)
Colgate's Oral Care EBITDA Margin : Oral Care's EBITDA Margin increased from 25% in 2008 to 29.5% in 2009 driven by higher pricing and cost-saving initiatives. It declined to 28.4% in 2010 because of higher advertising spend and input commodity costs. Margins recovered to 28.8% in 2011 owing to lower SG&A costs despite higher input commodity costs that lowered gross margins by 1.70%. In 2012, margins stood at 28.6% but declined to 26.5% in 2013 due to $371 million incurred as restructuring charges. We currently expect margins to decline gradually to 28.3% by the end of the Trefis forecast period. However, there could be more than 5% downside to the Trefis price estimate if margins decline to 26% over the Trefis forecast period due to input cost pressures, high commodity inflation and higher advertising costs with little room for higher pricing due to high competition.
Colgate's Global Market Share in Oral Care: We estimate that Colgate's Global Market Share of Oral Care increased from 24% in 2009 to 25.2% in 2013, as Colgate's revenues from oral care increased faster than the global market size of oral care products. Going forward, we expect Colgate's market share of oral care to increase steadily to 27.6% by the end of the Trefis forecast period. However, there could be a 10% downside if its market share declines to the 2008-09 levels of 24% over the next few years due to stiff pricing competition.
Colgate-Palmolive is a global multinational corporation with operations in over 200 countries focusing on manufacturing, marketing and distribution of Oral Care (toothpaste, toothbrush, mouthwash, dental floss etc), Personal Care (soaps and shampoos), Home Care (detergents and cleaners) and Pet Nutrition products. With over 75% of net sales coming from outside the U.S., Colgate-Palmolive has a very geographically diversified business.
Colgate-Palmolive is a global leader in Oral Care (which constituted more than 40% of the company's net sales in 2011) with a leading market share in toothpaste and manual toothbrush brands in most parts of the world. Colgate’s Oral Care products include Colgate Total, Colgate Max Fresh toothpastes, Colgate 360° manual toothbrushes, Colgate Plax mouth rinses, dental floss and pharmaceutical products for dentists and oral health professionals.
Colgate-Palmolive manufactures and markets a wide array of products for Home Care (about 23% of net sales), including Palmolive and Ajax dish washing liquids, Fabuloso and Ajax household cleaners and Murphy’s Oil Soap. Colgate is a market leader in fabric conditioners with leading brands including Suavitel in Latin America and Soupline in Europe.
Colgate-Palmolive is also a global leader in liquid hand soap. Colgate’s Personal Care (about 22% of net sales) products include Palmolive and Softsoap brand shower gels, Palmolive, Irish Spring and Protex bar soaps, and Speed Stick/Lady Speed Stick deodorants. Colgate’s Personal Care business outside of the U.S. also includes Palmolive and Caprice shampoo and conditioners.
Colgate-Palmolive, through its Hill’s Pet Nutrition segment (14% of net sales), is a global leader in specialty pet nutrition products for dogs and cats. Hill’s markets pet foods primarily under two trademarks: 1) Science Diet, which is sold by authorized pet supply retailers and veterinarians for everyday nutritional needs and 2) Prescription Diet, a range of therapeutic products sold by veterinarians to help nutritionally manage disease conditions in dogs and cats.
Trefis believes that Colgate's Oral Care business is more valuable than its Shampoo, Soap & Deodorants business because of the following reasons:
Oral Care market share is five times higher but market is two times smaller than the shampoos market
Colgate-Palmolive has about 27% share in the $29 billion global oral care market. The primary reason for Colgate's strong market position is its presence in multiple geographies especially in emerging markets like Latin America and Asia. In some regional markets, Colgate has a monopoly in oral health. Higher market share coupled with substantial brand equity and brand loyalty accrued over several years helps Colgate reach a larger number of consumers and shields its market position from larger competing brands (such as Procter & Gamble's Oral-B) and low cost private labels.
In comparison, Colgate-Palmolive has a 5-6% share in the $50 billion global hair care (shampoos) market. The company has a relatively small presence in the shampoos market with brands like Caprice, Kids, Naturals and Optims/Optima.
Colgate's marketing initiatives
Colgate has undertaken several initiatives that have increased the popularity of its brands among consumers and oral health care professionals. These initiatives have helped its products outsell other oral care brands available in the market.
- "Shopper Marketing" involves analyzing consumer behavior in stores to convert shoppers into buyers. Colgate has leveraged its partnerships with neighborhood stores and supermarkets to offer trial packs as well as helping create awareness among consumers regarding the benefits of oral health care through messages on prescription bags and better in-store displays.
- Colgate partners with dental care professionals to provide oral health education, free samples and dental screenings to children and their families to promote the use of oral care products. Initiatives such as inviting dental care professionals to tour Colgate's Global Technology Center have helped build credibility for its toothpaste brands.
- In Turkey, Colgate's unique "Mom! You first" theme based marketing campaign promotes moms in turkey to lead their kids to brush regularly by doing so themselves. Colgate's Invisible Nasties campaign reminds shoppers to replace toothbrushes regularly to prevent the building up of visible bacteria. These initiatives have helped boost market share.
Product innovation to drive higher margins and increase sales of premium priced brands
Colgate has launched several new products and continuously improves its existing product line. It launched Wisp Mini-Brush, a breath freshening bead that does not require water and can be used for on-the-go teeth cleaning and breath freshening. Similar innovations have helped Colgate expand sales of premium priced products and defend its market share from lower value private labels.
Strong partnership with customers and suppliers
Colgate-Palmolive's constant growth strategy has been to pursue partnerships and work closely with customers, many of whom are small shop owners, store owners and other retailers. This is done in order to understand consumer behavior and preferences. Colgate-Palmolive uses this information as feedback for its active R&D and marketing efforts, thus providing greater value to consumers in the form of better products.
Colgate-Palmolive has relationships with dental and veterinary professionals to build credibility among consumers, gain endorsement and long-term brand loyalty for its larger Oral Care and high growth Pet Nutrition businesses.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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