|New Threads Only:|
|New Threads & Replies:|
Forum List » Value Ideas and Strategies|
Share and discuss value investing ideas and investing strategies.
Colgate-Palmolive - Doing Everything That May Keep the Investors Glued to It
Posted by: TaniaC (IP Logged)
Date: March 10, 2014 03:37PM
Colgate-Palmolive Company (CL) is a consumer products company whose products are marketed in over 200 countries and territories throughout the world. It operates in two segments: Oral, Personal and Home Care and Pet Nutrition.
Under the oral care segment it has the following flagship brands operating under it- Colgate Total, Colgate Sensitive Pro-Relief, Colgate Max Fresh, Colgate Optic White and Colgate Luminous White toothpastes, Colgate 360° manual toothbrushes and Colgate and Colgate Plax mouth rinses. Colgate's Oral Care business also includes dental floss and pharmaceutical products for dentists and oral health professionals.
The personal care segment includes the likes of Palmolive, Softsoap, Sanex brand shower gels, Palmolive, Irish Spring and Protex bar soaps.
Profits Rise Due to Cost Cuts
Colgate-Palmolive Co, the world's largest toothpaste maker, reported a better-than-expected quarterly profit as cost cuts offset the negative impact of a stronger dollar. Colgate's gross margins rose in the fourth quarter as it cut costs by negotiating better lease terms with suppliers, using cheaper raw material and reducing packaging material in products.
"The company continues to deliver solid results, despite macro challenges - which is impressive," JPMorgan analyst John Faucher wrote in a note. Launch of higher-margin products, redesigning of some brands and introduction of successful regional products in other markets helped the company grow its sales.
Colgate, which controls about 45 percent of the global toothpaste market, said it expected its 2014 adjusted earnings to be in line with analysts' estimates. Analysts on average are expecting a profit of $3.08 per share in 2014. Colgate Chief Executive Ian Cook said he expected the company's organic sales, which strip out the impact of acquisitions, divestitures and foreign exchange, to grow 5% to 7% percent in 2014.
Organic Sales on the Rise
Colgate's organic sales rose 6.5 percent in the fourth quarter ended Dec. 31, led by growth in emerging markets. In Latin America, its biggest market by sales, organic revenue rose 12.5 percent mainly due to new products such as Colgate Luminous White Advanced and Colgate Total Professional Gum Health.
Organic revenue in Asia, including India and China, grew 9 percent due to higher sales of products such as Darlie Expert White toothpastes and Palmolive Naturals White + Milk bar soap. The company said its global volumes grew 6.5 percent, but pricing was flat. Pricing is expected to rise about 2 percent in 2014, Colgate said.
The company earned 75 cents per share, excluding a $133 million aftertax charge related to restructuring. Revenue rose 2 percent to $4.36 billion. Foreign exchange fluctuations hurt sales by 4.5 percent in the quarter, the New York-based company said. Colgate's gross profit margins rose to 58.9 percent in the fourth quarter from 58.4 percent a year earlier.
Tapping the Indian Market
India is known as one of the fastest-growing consumer markets, along with China, Indonesia, and Vietnam. India's aggregated consumer spend could reach $13 trillion by 2030. Colgate-Palmolive also sees big growth in its Indian business. The company is the market leader and controls around half of the Indian oral care market. In the third quarter of fiscal 2013, its toothpaste market share rose 80 basis points to reach 54.3% in the Indian market, driven by several premium-priced products such as Colgate Visible White. Its manual toothbrush share also increased by 250 basis points to 42.2% in India, while its regional mouthwash saw market share up by 40 basis points to 20.2%.
The Indian consumer market gives these global consumer products companies huge opportunities for future growth. With established leading positions, Colgate-Palmolive could successfully take advantage of the rise in India's middle class income to drive their global businesses forward.
Catering to the Opportunities That Are Lying in the Indian Rural Market
Colgate is also focusing on improving its execution on the ground. As a result of this approach, the company is directly reaching out to small local stores in rural India. India’s market rate is expected to grow at a much faster pace than the global rate since only 42% of the rural population in India uses toothpaste. This coverage strategy would definitely expand Colgate's share in the Indian market and defend Colgate's network from Oral-Bits newest rival entered in the market.
An Insight into the Future
The company has started a global growth and efficiency program to streamline its cost structure and further invest in growth opportunities. During the four years that the program will be in effect (2013 to 2016) the company intends to expand its commercial hubs, optimize its global supply chain and facilities, extend shared business services and streamline global functions.
It is expected that the target savings will be in the range of $275 million to $325 million annually, after-tax, by the fourth year of the program with a rate of return greater than 30%.
Since the company is implementing a restructuring program that has improved its margins in 2013 I expect that margins in 2014 will expand further and increase the company's future profitability.
Since 5.4 billion of the world's population still suffers from tooth decay the company has launched Colgate maximum cavity protection plus sugar acid neutralizer. The product is twice as effective as fluoride alone. The company has also launched Colgate Sensitive Smart Foam with whitening in Turkey, Colgate Luminous White Enamel Shine and Colgate Plax 2 in 1 in Brazil, Colgate Total Pro-Interdental in Europe, and Colgate Slim Soft Charcoal Toothbrush in Asia.
Last but Not the Least
Colgate-Palmolive has one of the most recession-resistant portfolios of products of all consumer goods companies. The most attractive feature of Colgate-Palmolive is its portfolio of products. The company's products are so basic and intimate that even during a recession consumers are hesitant to switch them out like they might with other lower-priced frequently private label offerings within other segments of consumer goods.
The company's top line is also projected to grow in the future. Together these factors would improve the company's per-share earnings and enhance the operating cash flows and shareholders' profits. The company also has wide global reach, and large scale of operations. The strong brands, customer loyalty and global scale of operations are indicative of a wide moat by this company.
Stocks Discussed: CL,