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Colgate-Palmolive May Reap Potentially Good Returns to Investors

March 18, 2014 | About:
abirk

abirk

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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.

Oral Care business products include 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. Its Personal Care products also include Palmolive, Softsoap and Sanex brand shower gels, Palmolive, Irish Spring and Protex bar soaps.

Performance Exhibited

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.

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. Gross margins are expected to increase by 75 to 125 basis points. The company reported gross margins of 58.6% for 2013.

Organic revenue in Asia, including India and China, grew 9% 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%. The company earned 75 cents per share, excluding a $133 million aftertax charge related to restructuring. Revenue rose 2% to $4.36 billion. The gross profit margins rose to 58.9% in the fourth quarter from 58.4% a year earlier.

Colgate-Palmolive has performed well over the past five years, with EBITDA expanding each and every year.The company's revenue contracted only once slightly in 2009. In spite of the one-year contraction, the company managed a positive compounded annual growth rate of 2.7% over the past four years.

Capturing 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.

Innovations and New Launches

Colgate feels that innovations and new product launches are the key to driving increases in market share and category growth. Therefore, the company has built a strong pipeline of product launches. Its Maximum Cavity Protection, plus Neutrazucar toothpaste that was launched in Brazil in fourth quarter, has already gained 3% share in the market. The company intends to build on the success of this toothpaste by launching it in Mexico.

Further, it is planning a comprehensive marketing campaign for Colgate Total Professional whitening toothpaste, a premium product that is gaining traction in the Brazilian market. Colgate will also launch products in the personal care category to drive growth. Some of the proposed launches include men’s Speed Stick and Lady Speed Stick stress defense deodorant.

To End

Demand for household and personal care products is generally stable and not affected by changes in the economy. About 80% of CL's sales come from outside the U.S., with over 50% from emerging markets. Long-term CL's stringent focus on cost management will help it to manage through future competitive challenges.

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.


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