What To Expect From Colgate-Palmolive’s Q2

by Trefis Team
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Colgate Palmolive (NYSE: CL) is scheduled to announce its fiscal second quarter results on Friday, July 27. In Q1, Colgate’s net sales were up 6% year-over-year (y-o-y), as global volume growth of 2% and foreign exchange benefit of 4.5% were partially offset by flat net selling prices. The company benefited from healthy volume increases across North America and Europe during the period. Colgate’s organic sales grew 1.5% y-o-y in the first quarter. Colgate remains the leader in the oral care hygiene market, with a market share of 35.2% in the U.S. toothpaste market and 42.6% in the U.S manual toothbrush market.

Colgate-Palmolive’s stock price has declined more than 10% over the course of 2018, due to uncertainty in global markets and challenging category growth worldwide. Our $72 price estimate for Colgate-Palmolive’s stock is less than 10% ahead of the current market price. We have created an Interactive Dashboard for Colgate-Palmolive which outlines our forecasts for the company’s Q2 and full-year fiscal 2018 results. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation. We expect the company to continue to post an increase in revenue and earnings growth rate in Q2, driven by ongoing innovation in products, cost-saving measures, and lower effective tax rate.

Nearly 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 (25%), Asia Pacific (18%), and Africa/Eurasia (6%). Almost half of the world’s population comes from the markets of China, India, and Africa, and only about a quarter of Colgate-Palmolive’s sales are generated there, so the company still has room to grow in these emerging markets, primarily due to low penetration of its category products in these regions and the likely increase in the consumption of its products with economic development. We expect these markets to be a key driver for Colgate-Palmolive’s long-term growth.

Future Outlook

Colgate-Palmolive had a relatively challenging 2017 – as it witnessed high material and logistics costs, increased competitive activity and a slowdown in growth in some markets. However, we expect 2018 to be comparatively less challenging, primarily driven by ongoing innovation in products such as toothpaste and soaps. The company expects a mid-single-digit net sales increase and low-single-digit organic sales growth in 2018, with sequential improvement in organic sales growth in the balance of the year. We expect the company’s Funding The Growth initiative to help offset some of the high raw material inflation. In addition, we expect the company to benefit from population growth, particularly in emerging markets. Going forward, the company intends to increase its advertising investments in 2018 and maintain that investment throughout the year in support of new products. To add to that, a positive pricing in the balance of the year should also provide a modest benefit to gross margins.

We expect Colgate-Palmolive to generate just over $16 billion in revenues in 2018, and adjusted earnings of around $2.7 billion. Our revenue forecast of $16.1 billion represents year-on-year growth of nearly 4%. Of the total expected revenues in 2018, we forecast $7.4 billion to come from the Colgate Oral Care business, over $3 billion for the Personal Care business, around $3.3 billion in the Home Care business, and nearly $2.4 billion for Hill’s Pet Nutrition.

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