What To Expect From Colgate-Palmolive’s Q4 Earnings

Colgate Palmolive (NYSE: CL) is scheduled to announce its fiscal fourth quarter results on Friday, January 26. In the first nine months of 2017, Colgate’s net sales were up 1% year-over-year (y-o-y), as volume declines of 0.5% were more than offset by net selling price increases of 1.0% and positive foreign exchange effects of 0.5%. The company benefited from healthy volume increases across Latin America and Europe during the  period. Colgate’s organic sales grew marginally at 0.5% y-o-y in the first three quarters, driven by an increase in organic sales in Oral Care, partially offset by a decrease in organic sales in Personal Care and Home Care.

Soft Demand In North American Market, Growth In Latin America

Almost 75% of Colgate’s net sales are generated from markets outside the U.S., with approximately 50% of the company’s net sales coming from emerging markets (which consist of Latin America, Asia ex. Japan, Africa/Eurasia and Central Europe). In the first nine months of 2017, the company’s net sales in Latin America grew 7.5% y-o-y, with organic sales up 6.5% y-o-y, driven by volume growth of 2.0% and net selling price increases of 4.5%. However, the company’s performance in geographies other than Latin America remained weak. To add to that, the company’s organic volumes also declined across many regions, except Latin America and Europe. These lower volumes represent a tough competitive environment which could offset the advantages of increased advertising to some extent until there is some improvement in the market growth rates led by a rebound in consumer demand. As evident from the results of Procter & Gamble (NYSE:PG) and Kimberly-Clark (NYSE:KMB), consumer demand in the North American market remained fairly sluggish in the December quarter. This suggests that Colgate-Palmolive’s top line could possibly underperform in North America in the fourth quarter.

Future Outlook

Going forward, Colgate-Palmolive continues to expect both its net sales and organic sales to increase at a low single-digit rate for the full year. The company also expects its full-year GAAP earnings per share to be down mid-single digits, and non-GAAP earnings per share to be down low single-digits. In addition, the company expects its gross margin expansion to be in the range of 20 to 50 bps this year as compared to its previous outlook of the lower end of the 75 to 125 bps range. This reduction is due to a combination of higher raw material costs and less of a benefit from pricing in the first nine months of fiscal 2017. Reuters’ compiled analyst estimates forecast revenues of $3.9 billion and earnings of $0.75 per share for Q4 2017, implying growth of about 6% and 0%, respectively.

We have created an interactive Dashboard which outlines our forecasts for the company and our expectations for its Q4 earnings. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.

Our $75 price estimate for Colgate-Palmolive is slightly below the current market price.

See our complete analysis for Colgate-Palmolive

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