What To Expect From Colgate-Palmolive’s Q3 and Fiscal 2018 Results

by Trefis Team
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Colgate-Palmolive
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Colgate Palmolive (NYSE: CL) is scheduled to announce its fiscal third quarter results on Friday, October 26. The company’s Q2 adjusted earnings per share (EPS) came in line at $0.77 but revenues missed market expectations. The company witnessed another challenging quarter, due to rising commodity costs and volatile exchange rates, in addition to weak category demand in many key markets. In Q2, Colgate’s net sales were up 1.5% year-over-year (y-o-y) while organic sales grew marginally at 0.5% y-o-y, largely held back due to unit volume declines in emerging markets and flat pricing globally. However, Colgate remains the leader in the oral care hygiene market, with a market share of 42.1% in the global toothpaste market and 32.3% in the manual toothbrush market.

Colgate-Palmolive’s stock price has declined almost 15% over the course of 2018, due to the continued uncertainty in global markets. Our $68 price estimate for Colgate-Palmolive’s stock is slightly ahead of the current market price. We have created an interactive dashboard on Can Colgate-Palmolive Return To Meaningful Growth In Fiscal 2018? which outlines our forecasts for the company’s Q3 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 its earnings growth rate in Q3, driven by innovation-led new product launches, cost-saving measures, and a lower effective tax rate. However, revenues could take a hit due to the ongoing weakness in category demand.

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. This implies that the company still has room to grow in these markets, primarily due to low penetration of its category products 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.

Fiscal 2018 Outlook

Looking ahead in 2018, Colgate-Palmolive expects a year of increased operating cash flow, modestly lower gross margin, increased advertising investment and mid-single-digit EPS growth compared to a prior outlook for low double-digit EPS growth. The company plans to focus on e-commerce, which could turn into a key growth driver in some key businesses. The company’s current e-commerce sales only account for a mid-single-digit percentage of its overall sales. We expect 2018 to be relatively challenging due to higher expected freight and logistics costs, increased competitive activity and a slowdown in growth in some markets. However, we expect the company’s Funding The Growth initiative to help offset some of the high raw material inflation. Further, we also expect Colgate’s revenues to be driven by ongoing innovation in products such as toothpaste and soaps, and also benefit from population growth particularly in emerging markets.

We expect Colgate-Palmolive to generate around $15.8 billion in revenues in 2018 and adjusted earnings of around $2.7 billion. Our revenue forecast of $15.8 billion represents year-on-year growth of nearly 2%. Of the total expected revenues in 2018, we forecast $13.5 billion to come from the Oral, Personal & Home Care business and nearly $2.3 billion for Hill’s Pet Nutrition.

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