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Colgate-Palmolive: A Quality Stock with Much to Offer
Posted by: Mrinalini Chaudhuri (IP Logged)
Date: May 6, 2014 11:13AM
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: 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.
Performance Report Card
The company reported for the first quarter of fiscal 2014 $388 million in profit, or $0.42 per share. This amount was down 16% from the $460 million, or $0.48 per share, earned in the first quarter of 2013. Per-share earnings totaled $0.68 when excluding after-tax costs related to implementing growth and efficiency programs and a sale of land in Mexico.
During the first quarter of 2014, foreign exchange transaction costs were part of the company's higher raw- and packaging-material costs reported in the period. In this period, Colgate-Palmolive declared an after-tax charge of $174 million, or $0.19 per share. In an effort to improve sales, the company is adding new products or relaunching current ones, like its Science Diet pet food line.
The company recently reported promising results for first quarter 2014, with its best-in-class innovations and effective cost saving initiatives. Both emerging and developed markets contributed well to growing the organic sales base of CL in the recent quarter, thereby reporting a 6.5% year-on-year increase in the overall organic sales base. However, on the margins front, CL showed mixed results in the recent quarter. With its cost saving initiatives being adversely affected by increased packaging costs, CL only slightly expanded its gross margins.
CL's future outlook is bright, with its restructuring program delivering benefits to grow bottom line results. Moreover, in first quarter 2014, the company experienced a 3% year-on-year increase in EPS and analysts are expecting a robust next five years growth rate of 8.65%.
Raising Prices to Deal with Currency Woes
Currency weakness has led to the reduction in value of sales for many consumer-products companies. Consumer-products giant Colgate-Palmolive has resorted to raising prices to deal with the declining value of sales from abroad.
Colgate-Palmolive's first-quarter sales rose, but charges related to Venezuela's exchange rate caused earnings to decline 16%. All of the company's operating divisions contributed to the period's organic sales growth of 6.5%, and emerging markets led in growth with a 10% increase in sales. In February, Colgate-Palmolive estimated that exchange rate losses related to Venezuela's currency valued foreign investments could be between $180 million and $200 million.
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.
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.
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.
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,