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Why Colgate-Palmolive is Good for Your Portfolio
Posted by: Mrinalini Chaudhuri (IP Logged)
Date: July 17, 2014 08:54AM
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.
The company has solid fundamentals and the shares are gaining momentum. The company is a market leader and is currently focusing on emerfing economies to boost its profitability. The company is known for its decent dividend payouts and share buybacks thereby creating shareholder value.
The company’s strong cash generation ability has also enabled it to reduce long-term debts. These factors reflect the company’s sound financial status and instill confidence among investors about the stock. Colgate-Palmolive has been regularly increasing its dividend every year since 2001 and presently pays an annual cash dividend of $1.44.
Colgate-Palmolive's financial strength is beyond question, and the company has consistently rewarded shareholders with growing dividends over the long term. Colgate-Palmolive has paid uninterrupted dividends since 1895, and it has raised those distributions for 51 years in a row.
The average volume for Colgate-Palmolive has been 3.1 million shares per day over the past 30 days. Colgate-Palmolive has a market cap of $62.1 billion and is part of the consumer goods sector and consumer non-durables industry. CL's revenue growth has slightly outpaced the industry average of 1.5%. Since the same quarter one year prior, revenues slightly increased by 0.2%.
Net operating cash flow has slightly increased to $820.00 million or 5.53% when compared to the same quarter last year. In addition, CL has also modestly surpassed the industry average cash flow growth rate of 3.57%.
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.
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.
On a Concluding Note
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%.
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.
Colgate-Palmolive is well-known for its undisputed market leadership in the oral care industry on a global scale. According to management, the company owns a market share of 44.3% in toothpaste, 33.5% in toothbrushes, and 38.5% in mouthwashes around the world.
Colgate sells its products in 225 countries and makes more than 80% of its revenue outside the U.S., which provides geographic diversification and international growth opportunities to investors. The company has built solid relationships with dental care professionals around the world, and this is a big advantage when it comes to creating brand awareness and product differentiation.
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,