Colgate-Palmolive Earnings: New Products, EM Penetration Will Support Growth

by Trefis Team
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Colgate-Palmolive
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Colgate-Palmolive (NYSE:CL) is slated to release its Q2 2013 results on July 25. The oral care giant built on the growth momentum gained in the prior quarters, posting total sales of $4.3 billion in Q1 2013, up 2.5% y-o-y. Organic sales grew by 6% due to an increase in volume by 4% and higher pricing by 1.5%. The company’s worldwide market shares also increased across oral categories as an increase in gross margin allowed the company to support new and existing products with higher advertising budgets.

We expect the company to post strong growth in organic sales year-on-year on higher market share in many emerging markets, its focus on innovation-led growth and higher advertising spend on product launches.

See our full analysis for Colgate-Palmolive

Emerging Markets Will Continue To Lead Growth

The company’s overall growth in Q1 2013 revenues was largely backed by strong growth in emerging markets. Organic sales in Greater Asia/Africa were higher by 10% y-o-y as volumes grew 11% and prices declined by 1% — India, Russia, the Greater China region, Turkey, the Philippines and South Africa were the major contributors. Growth in Latin America was in the high single-digits. Brazil showed impressive performance in particular with organic sales increasing by 17% y-o-y. Higher advertising expenditure and increased customer development initiatives helped the company achieve this growth rate.

Colgate-Palmolive is the market leader and well ahead of its competitors in many emerging economies. Its market share continued to increase in numerous categories across these countries. The company commands a market share of over 70% in toothpastes in Brazil. In China, where its nearest competitor has less than 20% share, Colgate-Palmolive leads the market with 35% share. Its share in Russia increased to 33% in Q1 2013 while the nearest competitor remained flat at 15%. There are also nascent categories such as liquid body cleansing and underarm in these markets which present growth opportunities for the company. [1]

Although Colgate-Palmolive has grown significantly in emerging markets, we believe the trend will continue due to the company’s dominant market share and growth opportunities in many categories. The greater allocation of advertising spend on these markets compared to developed economies will also help fuel growth.

Advertising Supports Innovative Launches To Drive Growth

Colgate-Palmolive has invested consistently in research and development to launch new product categories and variants. The company launched a number of products in Q1 2013 which helped improve its top line. It continued such launches in Q2 2013 as well.

The company marked its second entry in the U.S. in the mouthwash category with the launch of the new Colgate Total Mouthwash that offers several health benefits. The product’s marketing was a success as it broke the Guinness World Record for the “Most people using mouthwash simultaneously” at an event organized by the company in New York. [2]

It launched a number of new products across its sub-brands in Europe and South Pacific. The list includes Colgate Max Fresh Maxi Clean, which penetrates between teeth for an intense brush of clean, and Palmolive Mediterranean Moments, which nourishes skin and delights senses. In Brazil, (Latin America) Colgate-Palmolive’s share in bar soaps increased by 110 basis points in Q1 2013 keeping it slightly behind the market leader. To close the gap, the company launched Palmolive Naturals body-cleansing Luminous Sensation soap in Q2 2013, which contains hydrating Argan oil and oil complex to help soften the skin. It also supported these launches with advertising and marketing efforts across both digital and traditional channels. In our view, new product activity is especially important in developed and slow growing markets like Europe/South Pacific to increase revenues.

We will update our $56 price estimate for Colgate-Palmolive based on the earnings results.

Understand How a Company’s Products Impact its Stock Price at Trefis

Notes:
  1. Colgate-Palmolive Q1 2013 Earnings Call, Seeking Alpha, April 2013 []
  2. www.reuters.com, Reuters, June 2013 []
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