Colgate-Palmolive Company CL has been gaining from its sturdy business strategies, including pricing, innovation and productivity efforts. The company’s shareholder-friendly moves are also quite encouraging. 

Shares of this key consumer products’ dealer have gained 21.3% in the year-to-date period, outperforming the Zacks Soap and Cleaning Materials industry’s 18% growth and the broader Consumer Staples sector’s 8.9% rise.

Let’s Analyze Colgate’s Core Strengths

Colgate’s innovation strategy concentrates on growing in adjacent categories and product segments. The company is focused on the premiumization of its Oral Care portfolio through major innovations. Backed by premium innovation, products including CO. by Colgate, Colgate Elixir toothpaste and Colgate enzyme whitening toothpaste have been performing well. Also, at-home whitening and professional whitening products bode well. Its Oral Care business has also been performing well. 

The company has revamped its innovation model, leveraged global strength across price tiers and invested in marketing and capabilities, all of which lead to solid brand health and household penetration. Colgate has been gaining from strong pricing and the benefits of funding-the-growth program and other productivity initiatives. In the third quarter of 2024, pricing improved 3.1% year over year, backed by positive pricing across all divisions, except for North America.

Bold pricing actions and accelerated revenue-growth management plans have been bolstering Colgate’s organic sales. On an organic basis, the company’s sales advanced 6.8%, backed by growth in five of the six divisions. The rise in organic sales was led by double-digit growth in oral care for the fourth consecutive time in the reported quarter.

Such initiatives have been driving Colgate’s margins as well. During the third quarter, adjusted gross margin expanded 270 basis points (bps) while adjusted operating profit margin increased 50 bps year over year on higher gross margin. 

For 2024, management forecasts gross profit margin expansion on an adjusted basis, driven by continued pricing gains, benefits from revenue-growth management initiatives and strength in the funding-the-growth program. CL expects the Base Business’ earnings per share (EPS) to increase 10-11% year over year.

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Hindrance to Colgate’s Growth Path

Colgate has been witnessing inflationary pressures and a challenging macroeconomic environment for quite some time now. Raw material inflation and continued rise in packaging also act as deterrents to the company’s profitability. Higher adjusted selling, general and administrative (SG&A) and advertising expenses remain concerning. 

Management expects continued advertising investment for the rest of the year, primarily focused on brand-building and scaling capabilities. Management anticipates higher advertising costs for 2024, both on a dollar basis and as a percentage of sales. Unfavorable foreign currency fluctuations are also hurting the company’s performance. The sales view for 2024 includes a mid-single-digit negative impact of currency.

Conclusion

CL’s pricing and productivity initiatives are likely to address cost issues ahead. Colgate also remains committed to rewarding shareholders with share buybacks and dividend payouts. On an annualized basis, the dividend rate is $2.00 per share, up from $1.92 paid previously. Markedly, the company has paid uninterrupted dividends since 1895. 

Analysts seem quite optimistic about the company. The Zacks Consensus Estimate for CL’s sales and earnings per share (EPS) for 2024 indicates a 3.9% and 11.2% year-over-year increase, respectively. The consensus mark for 2025 sales and EPS implies growth of 3.6% and 7.6%, respectively, year over year. Colgate currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Freshpet, Inc. FRPT, a pet food company, has a trailing four-quarter average earnings surprise of 132.9%. FRPT currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Freshpet’s current financial-year sales and EPS indicates growth of 27.3% and 224.3%, respectively, from the prior-year levels.

Vital Farms VITL, which provides pasture-raised products, currently sports a Zacks Rank of 1. The consensus estimate for Vital Farms’ current financial-year sales and EPS indicates growth of 27.3% and 88.1%, respectively, from the prior-year levels.

VITL has a trailing four-quarter average earnings surprise of 48.5%.

McCormick & Company MKC, manufacturer and distributor of spices, seasonings, specialty foods and flavors, currently carries a Zacks Rank #2 (Buy). MKC has a trailing four-quarter average earnings surprise of 13.8%.

The Zacks Consensus Estimate for MKC’s current financial-year sales and EPS indicates growth of 0.6% and 8.2%, respectively, from the year-ago figures.

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Colgate-Palmolive Company (CL) : Free Stock Analysis Report

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