Colgate-Palmolive Q4 Earnings Review: LatAm Market Share Defied Volume Slump
Colgate-Palmolive (NYSE:CL) reported its fiscal 2015 fourth quarter results on January 29th. [1] As expected, pricing was the dominant component in the 5% year on year organic growth achieved by the company in the fourth quarter. Currency headwinds remained high in all international markets except Asia, which may have forced the company’s hand in raising prices sharply in Latin America and Africa/Eurasia regions. The resultant fall in volumes was spread out evenly over Colgate-Palmolive’s Oral Care, Personal Care, and Home Care businesses. [2]
As in the previous quarters, margin accretion continued to be the sole silver lining. Higher pricing and cost savings from the Funding the Growth program and restructuring more than offset a substantial jump in commodity cost. This helped the company achieve a modest improvement in the fourth quarter non-GAAP gross margin and non-GAAP operating margin.
Colgate-Palmolive’s fourth quarter performance snapshot:
- Revenues declined by 7.5% year on year to $3.9 billion (5% growth in non-GAAP terms)
- Non-GAAP gross margin improved by 20 basis points year on year to 59%
- Non-GAAP operating margin improved by 40 basis points year on year to 26%
- Non-GAAP diluted EPS contracted by 4% year on year to $0.73
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Our price estimate of $60 for Colgate-Palmolive is about 10% lower than its current market price.
See our complete analysis for Colgate-Palmolive here
Long-Term Impact of Volume Contraction May be Limited
In the fourth quarter earnings conference call, Colgate-Palmolive claimed that it is gaining market share despite negative volume growth, as is the case in Brazil. [2] This could have been made possible by a market-wide slump in consumer consumption, or if the volumes of Colgate-Palmolive’s competitors contracted even more.
In such a case, the long-term impact of the recent fall in Colgate-Palmolive’s volumes may not be as bad as we previously expected. Generally, sustained and steep increase in prices is a cause of concern because of the chance of losing customers to cheaper products offered by rivals. This causes a loss of market share. However, Colgate-Palmolive claimed that consumers are not down trading (yet) despite the steep hike in prices. [2]
Thus, if Colgate-Palmolive is gaining market share in troubled regions like Brazil, it suggests that it may be performing better than its competitors in Latin America. Therefore, the threat of losing ground in Latin America, Colgate-Palmolive’s biggest market by revenue share, appears to be lower than previously expected. We expect volume to take over pricing as the dominant component in Colgate-Palmolive’s organic revenue growth in the back half of fiscal 2016.
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Notes:- Colgate-Palmolive Investor Relations [↩]
- Colgate-Palmolive Fiscal 2015 Fourth Quarter Earnings Call Transcript, Seeking Alpha, January 29, 2015 [↩] [↩] [↩]