VALUATION HIGHLIGHTS

1. Oral, Home, Personal Care constitutes 76% of the Trefis price estimate for Colgate-Palmolive's stock.
2. Hill's Pet Nutrition constitutes 24% of the Trefis price estimate for Colgate-Palmolive's stock.

WHAT HAS CHANGED?

1. CL Stock Performance

CL stock has seen little change, moving slightly from levels of $85 in early January 2021 to around $90 in early April 2024, vs. an increase of about 40% for the S&P 500 over this roughly three-year period.

Overall, the performance of CL stock with respect to the index has been lackluster. Returns for the stock were 0% in 2021, -8% in 2022, and 1% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that CL underperformed the S&P in 2021 and 2023.

2. 2023 Earnings

Colgate-Palmolive reported net sales of $19.5 billion in 2023, up 8.3% y-o-y, led by a 13% growth in Pet Nutrition and a 7% rise in Oral, Personal, and Home Care segment sales. The company also saw its operating margin expand by 440 bps to 20.5%. Adjusted EPS increased from $2.97 in 2022 to $3.23 in 2023.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Colgate-Palmolive's Oral, Personal & Home Care EBITDA Margin : Oral Care's EBITDA Margin has historically fluctuated between 25% and 30%. It decreased from 28.8% in 2011 to 24.0% in 2015 due to a combination of several factors, including commodity cost inflation, higher advertising expenses, and currency headwinds. However, it surged significantly to over 30% in 2016, mainly because of cost savings initiatives, favorable commodity costs and some gains from the sale of lands. Thereafter, it declined slightly to 31% in 2017 and 30.4% in 2018. As of 2022, it currently stands at 21.8%.

We expect that Colgate-Palmolive's cost-saving measures will help drive its margins to just under 30% over our forecast period. However, there could be an approximate 15% upside to the Trefis price estimate if margins expand to 35% over the Trefis forecast period, due to stabilization of input costs and currency headwinds, and lower marketing costs due to a shift to digital and social media advertising.

BUSINESS SUMMARY

Colgate-Palmolive is a global multinational corporation with operations in over 200 countries focusing on manufacturing, marketing and distribution of Oral Care (toothpaste, toothbrush, mouthwash, dental floss etc), Personal Care (soaps and shampoos), Home Care (detergents and cleaners) and Pet Nutrition products. With over 75% of net sales coming from outside the U.S., Colgate-Palmolive has a very geographically diversified business.

Colgate-Palmolive is a global leader in Oral Care with a leading market share in toothpaste and manual toothbrush brands in most parts of the world. Colgate's Oral Care products include Colgate Total, Colgate Max Fresh toothpastes, Colgate 360 ° manual toothbrushes, Colgate Plax mouth rinses, dental floss and pharmaceutical products for dentists and oral health professionals.

Colgate-Palmolive manufactures and markets a wide array of products for Home Care, including Palmolive and Ajax dish washing liquids, Fabuloso and Ajax household cleaners and Murphy's Oil Soap. Colgate is a market leader in fabric conditioners with leading brands including Suavitel in Latin America and Soupline in Europe.

Colgate-Palmolive is also a global leader in liquid hand soap. Colgate-Palmolive's Personal Care products include Palmolive and Softsoap brand shower gels, Palmolive, Irish Spring and Protex bar soaps, and Speed Stick/Lady Speed Stick deodorants. Colgate-Palmolive's Personal Care business outside of the U.S. also includes Palmolive and Caprice shampoo and conditioners.

Colgate-Palmolive, through its Hill's Pet Nutrition segment, is a global leader in specialty pet nutrition products for dogs and cats. Hill's markets pet foods primarily under two trademarks: 1) Science Diet, which is sold by authorized pet supply retailers and veterinarians for everyday nutritional needs and 2) Prescription Diet, a range of therapeutic products sold by veterinarians to help nutritionally manage disease conditions in dogs and cats.

SOURCES OF VALUE

Trefis believes that Colgate-Palmolive's Oral Care business is its most valuable component because of the following reasons:

Oral Care market share

Colgate-Palmolive has about a 20% share in the $34 billion global oral care market. The primary reason for Colgate's strong market position is its presence in multiple geographies, especially in emerging markets like Latin America and Asia. In some regional markets, Colgate has a monopoly in oral health. Higher market share coupled with substantial brand equity and brand loyalty accrued over several years helps Colgate reach a larger number of consumers and shields its market position from larger competing brands (such as Procter & Gamble's Oral-B) and low-cost private labels.

On the other hand, Colgate-Palmolive has just under 4% share in the combined $88 billion global market for deodorants, bath and shower products, and hair care products.

KEY TRENDS

Colgate's marketing initiatives

Colgate has undertaken several initiatives that have increased the popularity of its brands among consumers and oral health care professionals. These initiatives have helped its products outsell other oral care brands available in the market.

• "Shopper Marketing" involves analyzing consumer behavior in stores to convert shoppers into buyers. Colgate has leveraged its partnerships with neighborhood stores and supermarkets to offer trial packs as well as helping create awareness among consumers regarding the benefits of oral health care through messages on prescription bags and better in-store displays.
• Colgate partners with dental care professionals to provide oral health education, free samples and dental screenings to children and their families to promote the use of oral care products. Initiatives such as inviting dental care professionals to tour Colgate's Global Technology Center have helped build credibility for its toothpaste brands.



Product innovation to drive higher margins and increase sales of premium priced brands


Colgate-Palmolive launches new innovative products in every quarter to retain and build consumer interest. It has recently shifted its focus to so-called "margin-accretive" innovation, that is, products with specific additional benefits that justify higher pricing. has launched several new products in the past and continues to improve its existing product line. These innovations not only help Colgate-Palmolive drive top-line growth and defend its market share, but also adds to the bottom-line due to their higher pricing.


Strong partnership with customers and suppliers


Colgate-Palmolive's constant growth strategy has been to pursue partnerships and work closely with customers, many of whom are small shop owners, store owners and other retailers. This is done in order to understand consumer behavior and preferences. Colgate-Palmolive uses this information as feedback for its active R&D and marketing efforts, thus providing greater value to consumers in the form of better products.
Colgate-Palmolive has relationships with dental and veterinary professionals to build credibility among consumers, gain endorsement and long-term brand loyalty for its larger Oral Care and high growth Pet Nutrition businesses.