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Investment Overview for Colgate-Palmolive (NYSE:CL)
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Colgate's Oral Care EBITDA Margin : Oral Care's EBITDA Margin increased from 24.5% in 2008 to 29% in 2009 driven by higher pricing and cost-saving initiatives. It declined to 28% in 2010 because of higher advertising spend and input commodity costs. Margins recovered to 28.4% 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 28.2%. We currently expect margins to decline gradually to 28% by the end of the Trefis forecast period. However, there could be a 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 22% in 2007 to 25% in 2010 and 26.3% in 2012, 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 remain flat over the Trefis forecast period. However, there could be a 5% downside if its market share declines to the 2008-09 levels of 24% over the next few years due to stiff pricing competition.
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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.
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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 a 25% share in the $28 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.
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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.
Trefis Forecast Rationale for Colgate's Global Market Share of Oral Care
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This refers to Colgate's share of global oral care products such as toothpastes, toothbrushes, mouthwash and dental floss.
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We estimate that ${forecast} increased from 22% in 2007 to 26% in 2012 as Colgate's revenues from oral care increased faster than the growth in market size for oral care products.
Going forward, we expect the market share to improve to 28.4% by the end of the Trefis forecast period.
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Trefis considered the following factors for its forecast
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- Strong marketing support
- Colgate invests significant resources in consistently increasing brand equity and has undertaken several initiatives to enhance its brand image among consumers and oral health care professionals. Trefis expects these efforts to help Colgate's oral care brands expand their market share and to outsell other competing brands.
- Colgate has leveraged its partnerships with neighborhood stores and supermarkets to offer trial packs as well as creating 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.
- Colgate's Invisible Nasties campaign reminds shoppers to replace toothbrushes regularly to prevent building up of visible bacteria. This will help Colgate increase its market share in the oral care space.
- Product innovations will help Colgate expand sales of premium priced products and defend its market share from lower value private labels. We expect the company to continue to improve its product portfolio through regular new product launches.
- Deep presence in emerging markets
- Colgate has an elaborate existing distribution network due to its longstanding presence in the emerging markets of Asia and Africa which enables it to sell its products in remote locations in these geographies and draw volumes from local players. North America and Europe on the other hand, have a well-developed organized retail channel so products are available for sale even in the most remote locations.
- The trend towards urbanization as exhibited by Asia and Africa too favors global players over local and regional ones since product benefits get communicated more effectively. Premium products seem to offer better value when the consumer is able to appreciate the specific product benefits.
- Colgate stands to gain higher market share than other global players in Asia and Africa because it offers an entire portfolio of oral care products (toothpastes, toothbrushes, mouthwashes etc). Having an entire portfolio economizes branding and advertising efforts for the brand along with much scope for cross selling.
- Performance in the U.S.
- The Colgate Optic White toothpaste has been performing very well in the U.S. with a strong market share and solid repeat rates. In 2012, Colgate will launch another variant, Optic White Cool Mild Mint to add to the successful franchise.
- Its late 2011 launch of Colgate Sensitive Pro-Relief has also been delivering good results in the sensitivity category with variants expected to come up in 2012.
- In toothbrushes, it is expected to launch Colgate 360 Surround Sonic Power with 3x bacteria removal action to expanded the extremely successful Colgate 360 franchise.
- Strong presence in Europe
- Colgate maintained its oral care market share in Europe despite a highly competitive environment, helped by Colgate Sensitive Pro-Relief (particularly in the U.K.), Colgate Total (in Germany) and Colgate Plax (in France).
- New products have been key for market share gains and Colgate is expected to increase its new product offerings in 2012, higher than the levels in 2011. New products include the Colgate Total Pro Gum Health product range, premium category Colgate Max White Shine and Colgate Sensitive Pro-Relief Enamel Repair.
- Growing market share across Latin America
- Colgate's organic sales in Latin America grew at 14.5% in the last quarter of 2011, adding to market share in the toothpaste, toothbrushes and mouthwash categories.
- After the excellent performance of Colgate Luminous White launched in Mexico and Brazil in Q4 2011, it will be rolled out across the region in 2012.
- Strong growth momentum in Asia/Africa
- Colgate reported a strong 8.5% organic sales growth in Q4 of 2011 in the region, particularly in China, India and Russia. The growth momentum is expected to stay strong with a robust lineup of new products like Colgate Sensitive Pro-Relief Enamel Repair and Colgate Max White One.
- Across India, the firm will be relaunching Colgate Total with an improved packaging and integrated marketing support. This should further strengthen its already 50% plus market share.
- The tapered bristles segment is growing very rapidly across Asia, at double-digit growth rates in many markets. Colgate's recent regional launch of Colgate Slim Soft toothbrush with tapered bristles is expected to capitalize on this growth.
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