Colgate-Palmolive (NYSE:CL), the world leader in oral care, improved its 3Q sales volume with 5% growth compared to just 2% growth over the first two quarters of fiscal 2011. Competitive activity subdued pricing efforts as previously planned and Colgate-Palmolive kept prices stable to strengthen market share despite high cost pressures that significantly brought down gross margins. Colgate competes with other leading personal care companies such as Procter & Gamble (NYSE:PG), Unilever (NYSE:UL) and Kimberly-Clark (NYSE:KMB).
View our detailed analysis for Colgate-Palmolive
Maintains lead in oral care category
Colgate-Palmolive’s 3Q sales increased 11% (y/y) with a strong volume growth of 5% despite some pricing, which sharply improved after the first two quarters posting just 2% volume growth even when prices were falling. It ended the quarter with higher market share in oral care products, mainly toothpaste where it crossed 44.4% market share and manual toothbrushes with a 32% global market share. The newly acquired Europe-based premium toiletries brand Sanex contributed 2% to sales and volume growth. The company also completed the sale of its laundry detergent brands in Colombia to Unilever as part of its strategy to focus on its higher-margin oral care, personal care and pet nutrition businesses.
Margins under pressure
As the cost of input commodities soared high this year, Colgate-Palmolive felt significant heat. Despite the easing of input inflation last quarter, the benefit is yet to reflect in the company’s income statement. Competitive activity also left less room for higher pricing measures by Colgate-Palmolive and the price increases were not as strong as previously forecast by the company. With higher raw material and packaging costs worldwide, gross profit margin went down 320 basis points versus the year ago quarter, partially offset by higher pricing and cost savings. As a result of higher cost environment, CL expects gross profit margin for the fiscal year to decline between 150-170 basis points versus 2010.
We value Colgate-Palmolive with a $89 Trefis price estimate of its stock, which is roughly in line to its current market price.
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