Colgate-Palmolive (NYSE:CL) is best known for its range of oral care products. In the last few quarters, with a mix of new product launches and effective marketing, the company has managed to clock impressive rates of organic growth in the oral care segment. The company’s market share in the segment increased consistently in 2012, with gains of more than 1 percentage point in both emerging regions such as China, Latin America and mature markets such as North America.
The trouble for Colgate lies in the personal care segment that does not enjoy the dominant market share power it exercises over oral care products worldwide. The segment includes products like soaps, shampoos and deodorants marketed under the ‘Palmolive’ brand. Personal care is the company’s second-highest revenue earner, contributing around 22% to the company’s top line in 2011. But the company has been regularly outpaced in mature markets by Procter & Gamble (NYSE:PG) and in emerging markets by Unilever (NYSE:UL), both of whom have a much bigger portfolio of personal care products than Colgate. And it is easy to see why. Both competitors have been constantly innovating and launching a variety of new product lines in skin and hair care in worldwide markets while there has been very little initiative from Colgate.
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But bringing some cheer to Colgate’s investors in the personal care division was the company’s acquisition of Sanex in early 2011. Sanex operates a range of skin care products, and the brand has a strong presence in Western European markets. Colgate happened to land the deal due to a European Commission ruling, which required Unilever to divest Sanex due to monopoly issues. 
The forced sale certainly gave Colgate a leg up in Europe, but the region’s general economic stagnation means that Colgate can’t really expect much traction in terms of organic sales growth here. Investors should look forward to the time when the company makes a real drive towards emerging markets.
However, if Colgate doesn’t take on new initiatives, we expect Unilever to gain a major share of the emerging markets. Unilever has clearly chalked out its business plans here – the company aims to earn as much as 75% of its total revenues from emerging markets by 2020. With sales channels that more than match up to Colgate’s in terms of depth, an active marketing and promotions plan and new and diverse product launches, we see no reason why Unilever should fail to achieve its targets. The competition is expected to get more fierce in the coming years with companies like L’Oreal and P&G attacking the high end price segment in emerging markets.
On the brighter side, investors should keep in mind that Colgate is already armed with an adequate portfolio of products, and through its oral care division, has established deep channels in regions of South Asia, Africa and Latin America. There is little reason to doubt the company’s success if its policies in the segment are made a little more aggressive. Till then, investors can only bank on the oral care division to keep the top line healthy.
We currently have a Trefis price estimate of $105 for Colgate-Palmolive, which is slightly below the market price.Notes: