Colgate-Palmolive (NYSE:CL) will announce its Q2 earnings July 26. Last quarter, the consumer products company posted its strongest organic growth (~6.5%) in the last two years helped by higher pricing and improved sales volume. The results were led by the emerging markets that posted double digit organic sales growth (~11.5%). This quarter we will watch out for continued momentum in volume trends, particularly in Asia and Latin America and improved margins due to improved pricing. Colgate-Palmolive competes with other leading personal care companies such as Procter & Gamble (NYSE:PG) and Unilever (NYSE:UL).
Emerging Markets Lead the Way
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Colgate-Palmolive’s Q1 earnings were buoyant despite economic difficulties in most of its developed markets and were a healthy mix of pricing and volume growth. The results benefited particularly from its strong presence in emerging markets from where the oral care giant derives more than 50% of its sales. The organic sales growth was strongest in Latin America (+13.5%), which represents 28% of its sales, followed by Greater Asia/Africa (+10.5%), which contributes 21%, and North America (+5.5%) that accounts for 18%.
This was, however, offset by negative growth in Europe and South Pacific (-2%), which represents 20% of its sales. The Europe volumes were weak despite Colgate’s recent acquisition of premium personal care brand Sanex amid weak consumer demand.
Gross Margins Expected to Improve
Colgate has succeeded in raising its prices despite hurting volume or market share growth. Last quarter, its market share went up in 8 of the 12 categories across different markets. Pricing also helped improve the gross margins sequentially by 50 bps over the fourth quarter of 2011, more than offsetting the continued commodity cost pressure. The company expects the gross margin to continue improving over 2012, and the trend should reflect this quarter as well.
We value Colgate-Palmolive with a $98 Trefis price estimate of its stock, at 4% discount to the current market price.