Colgate-Palmolive Remains One Of The Highest-Quality Names Despite Tough End-Market Backdrop: Goldman Sachs

Goldman Sachs analyst Bonnie Herzog reiterated a Buy rating on the shares of Colgate-Palmolive Co CL with a price forecast of $106.

CL reported fourth-quarter earnings per share of $0.91, surpassing expectations (compared to the GS/FactSet consensus of $0.88/$0.89).

However, fourth-quarter organic sales growth of 4.3% fell short of predictions, impacted by a 50 basis point drag from lower private label volumes in Pet Nutrition, said the analyst.

Additionally, Hill’s Pet Nutrition faced challenges in Europe, leading to a miss in segment growth.

North America’s organic sales declined by 0.7%, while Europe and APAC experienced low-to-mid single-digit growth. Latin America and Africa/Eurasia saw high single-digit increases, opined the analyst.

Weaker organic sales growth, combined with higher-than-expected inflationary pressures, contributed to lower-than-anticipated gross margins and slightly weaker operating margins.

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According to the analyst, lower tax rate of 21.6% provided a $0.04 EPS boost, contributing to CL’s small EPS beat for the quarter.

Management has provided its initial FY25 guidance, which largely aligns with expectations, although foreign exchange headwinds are expected to impact net sales and possibly EPS for the year, per the analyst.

The analyst asserted that the company’s organic sales growth forecast of 3%—5% is consistent with its long-term target. This guidance accounts for the planned exit from private label pet nutrition in 2025, which is expected to have a larger impact than in the fourth quarter.

Overall, the analyst expects the stock to see modest declines due to weaker-than-expected organic sales growth.

The analyst considers CL one of the top-tier companies in the HPC coverage, consistently outperforming and raising its FY24 outlook, even amidst challenging market conditions.

After three years of strong growth, the analyst anticipates a more balanced environment in FY25 with slower price growth and improved volume/mix trends.

However, foreign exchange remains a potential risk, likely impacting gross margins and dollar EPS growth. Looking ahead, the analyst expects the company to maintain healthy revenue growth driven by favorable market trends and market share expansion, benefiting from household penetration and premiumization.

Price Action: CL shares are trading lower by 4.33% at $86.95 at the last check Friday.

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