Colgate Rises 5% In The Past Three Months: Here's How

Colgate CL has been benefiting from bold pricing actions and accelerated revenue growth management plans. Revenue growth management initiatives led to double-digit pricing gains worldwide in the first quarter of 2023. This led to the impressive quarterly results, wherein the top and bottom lines beat the Zacks Consensus Estimate.
The company witnessed growth in all divisions and all four categories. Net sales of $4,770 million increased 8.5% from the year-ago quarter and beat our estimate of $4,502.2 million. On an organic basis, sales advanced 10%, with improvements in all divisions and categories. This marked the 17th successive quarter of organic sales growth at or above its long-term target of 3-5% growth.
Colgate's innovation strategy is focused on growing in adjacent categories and product segments. It is also 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.
The company is on track to launch Optic White Renewal and then Optify Pro Series in the United States or the new MPS whitening technology to drive long-term growth. Its at-home whitening and professional whitening products also bode well.
Some notable efforts include the continued expansion of the Naturals and Therapeutics divisions, the Hello Products LLC buyout, and a partnership with Philips to introduce electric toothbrushes in Latin America under a co-brand, namely Philips Colgate.
The company is aggressively expanding the geographic footprint of its brands, along with enhanced distribution to faster growth channels. It has expanded its portfolio by introducing pharmacy brands like elmex and meridol to newer markets. Its professional skincare businesses — Elta MD and PCA Skin — are performing well in spas and dermatology clinics.
Colgate also expanded its premium skincare portfolio with the buyout of the Filorga skincare business. It is gaining from strong market share gains in North America and China, its two largest markets, with increased share gains across all other regions.
The company's Hill's business has been witnessing a sales momentum, with sales growth of 21.5% in the first quarter and organic sales growth of 14%. Results gained from an 11.5% increase in pricing, volume growth of 12% on a reported basis and 2.5% on an organic volume basis, partly offset by a 2% adverse currency impact. Organic sales were aided by gains in the United States and Europe. Strength in oral care and pet nutrition remain key growth drivers.
Colgate's newly launched Prescription, Diet Derm Complete, has been gaining market share and is likely to be rolled out internationally in the coming quarters. It also remains focused on expanding the availability of its products through the e-commerce channel, as more consumers are using online services for their essential needs.
Driven by these factors, management raised its sales and profit forecast for 2023. Colgate anticipates net sales growth of 3-6% compared with the previously mentioned 2-5%. The current projection indicates gains from the acquisitions of pet food businesses, offset by a low-single-digit adverse currency impact.
The company anticipates full-year organic sales growth between 4% and 6% compared with the earlier mentioned 3-5%. It also foresees adjusted gross profit margin expansion and increased advertising investment. Management expects mid-single-digit growth in adjusted earnings per share compared with the prior mentioned low to mid-single-digit increase.

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We note that shares of Colgate have gained 5% in the past three months compared with the industry's growth of 6.4%.

However, CL has been reeling under elevated raw and packaging material and logistics costs. In the first quarter of 2023, the gross margin contracted 160 basis points (bps) to 56.9% on both GAAP and an adjusted basis. This includes an adverse impact of 90 bps from private-label sales resulting from the previously disclosed acquisitions of pet food businesses. The adjusted operating margin contracted 40 bps to 19.1%. Also, selling, general and administrative expenses grew 7.1% year over year to $1,758 million.
Consequently, the bottom line declined 1% year over year to 73 cents. On a GAAP basis, earnings plunged 32% to a penny per share.

Conclusion

We believe that Colgate's strategic efforts, including product innovation, brand strength and expansion plans, will help offset cost headwinds and drive further growth. A VGM Score of B and a long-term earnings growth rate of 6.2% raise optimism for this Zacks Rank #3 (Hold) stock. Earnings estimates for 2023 have moved up 1% in the past 30 days.

Stocks to Consider

Here, we have highlighted some better-ranked stocks from the broader Consumer Staples space, namely Procter & Gamble PG, Conagra Brands CAG and Church & Dwight Co. CHD.
Procter & Gamble currently carries a Zacks Rank #2 (Buy). PG has a trailing four-quarter earnings surprise of 1.02%, on average. It has a long-term earnings growth rate of 6.1%.
The Zacks Consensus Estimate for Procter & Gamble's current financial-year sales and earnings per share suggests growth of 1.3% and 0.9%, respectively, from the year-ago reported numbers. The consensus mark for PG's earnings per share has moved up by a penny in the past seven days.
Conagra Brands, operating as a consumer-packaged goods food company, currently carries a Zacks Rank #2. CAG has a trailing four-quarter earnings surprise of 13.2%, on average. It has a long-term earnings growth rate of 6.4%.
The Zacks Consensus Estimate for Conagra Brands' current fiscal-year sales and earnings suggests improvements of 7.1% and 16.5%, respectively, from the year-ago reported number. The consensus mark for CAG's earnings per share has moved up 3.4% in the past 30 days.
Church & Dwight currently has a Zacks Rank #2 and an expected long-term earnings growth rate of 7.6%. CHD has a trailing four-quarter earnings surprise of 9.8%, on average.
The Zacks Consensus Estimate for Church & Dwight's current financial-year sales and earnings suggests growth of 5.9% and 4%, respectively, from the year-ago reported numbers. The consensus mark for CHD's earnings per share has moved up by a penny in the past seven days.

Image by Diana Polekhina on Unsplash