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Colgate's Sales Gain on Strong Demand Amid Currency Woes
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Colgate-Palmolive Company (CL - Free Report) has been gaining from sturdy demand for its products, solid e-commerce growth and strong financial position. Driven by these, the company posted second-quarter 2020 results, wherein both top and bottom lines rose year over year. This was the third straight quarter of sales beat. Also, this marked the seventh consecutive quarter of sequential improvement in organic sales. However, deleverage in advertising and SG&A expenses along with adverse currency fluctuations remain concerns.
Notably, shares of this company climbed 10.3% year to date, outperforming the industry’s growth of 8.7%.
That said, let’s delve deeper into the factors that influence this Zacks Rank #3 (Hold) stock.
What’s Driving the Stock?
Colgate has been witnessing strong organic sales growth, driven by improved volumes and higher pricing. Notably, organic sales advanced 5.5% in second-quarter 2020. On a geographic basis, the company experienced organic sales growth across all of its regions, except Europe. Also, sturdy volume growth, as well as robust pricing through premiumization and revenue growth management, aided the top line to some extent. These pricing actions also led to a gross margin expansion of 130 basis points in the said quarter.
Further, Colgate has been gaining from strong demand for some categories like liquid hand soap, dish liquid, bar soap and cleaners across almost all geographies, stemming from the COVID-19 outbreak. This led the company to expand the availability of its products through enhanced distribution to newer markets and channels, which is likely to help improve its organic sales performance in the near term.
The company remains focused on innovation across its adjacent categories and product segments. In this regard, the premiumization of its Oral Care portfolio through major innovation bodes well. The company’s recent buyout of Hello Products LLC to expand its already strong oral care portfolio is performing well. Other notable efforts include the re-launch of Colgate Total and Hill’s Science Diet as well as the continued expansion of the Naturals and Therapeutics divisions. Additionally, it continues to expand the Naturals toothpaste and prescription diet.
Moreover, a solid online show on the back of a sudden spike in demand for essential needs, stemming from the ongoing COVID-19 pandemic, has been aiding the top line. This led the e-commerce business to grow more than 50% in the second quarter, backed by strength in Hill’s and U.S. businesses. Encouragingly, the company has been expanding the availability of its products through the e-commerce offerings with the launch of Hill’s to home, which enables pet parents to purchase prescription diet products directly from their veterinarians with home delivery options.
Hurdles on The Way
Colgate is reeling under high costs and adverse currency rates. Speaking of costs, elevated SG&A expenses may be attributed to increased advertising investment and higher logistics cost stemming from a spike in demand due to COVID-19. Also, unfavorable foreign currency impacted sales across all geographic regions in the second quarter. For 2020, management continues to expect a mid-single-digit negative impact related to foreign exchange on net sales for 2020, based on current spot rates.
Bottom Line
Despite these downsides, we hope that a solid top line, driven by pricing gains and rising demand, is likely to help the company maintain momentum amid this crisis. In fact, the stock’s VGM Score of A and long-term earnings growth rate of 5.9% reflect its inherent strength. Also, the stock is hovering close to its 52-week high of $77.46.
Helen of Troy Limited (HELE - Free Report) currently has an expected long-term earnings growth rate of 6.5% and a Zacks Rank #2 (Buy).
Campbell Soup Company (CPB - Free Report) has a long-term earnings growth rate of 8.3% and a Zacks Rank #2.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2020?
Last year's 2019 Zacks Top 10 Stocks portfolio returned gains as high as +102.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
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Colgate's Sales Gain on Strong Demand Amid Currency Woes
Colgate-Palmolive Company (CL - Free Report) has been gaining from sturdy demand for its products, solid e-commerce growth and strong financial position. Driven by these, the company posted second-quarter 2020 results, wherein both top and bottom lines rose year over year. This was the third straight quarter of sales beat. Also, this marked the seventh consecutive quarter of sequential improvement in organic sales. However, deleverage in advertising and SG&A expenses along with adverse currency fluctuations remain concerns.
Notably, shares of this company climbed 10.3% year to date, outperforming the industry’s growth of 8.7%.
That said, let’s delve deeper into the factors that influence this Zacks Rank #3 (Hold) stock.
What’s Driving the Stock?
Colgate has been witnessing strong organic sales growth, driven by improved volumes and higher pricing. Notably, organic sales advanced 5.5% in second-quarter 2020. On a geographic basis, the company experienced organic sales growth across all of its regions, except Europe. Also, sturdy volume growth, as well as robust pricing through premiumization and revenue growth management, aided the top line to some extent. These pricing actions also led to a gross margin expansion of 130 basis points in the said quarter.
Further, Colgate has been gaining from strong demand for some categories like liquid hand soap, dish liquid, bar soap and cleaners across almost all geographies, stemming from the COVID-19 outbreak. This led the company to expand the availability of its products through enhanced distribution to newer markets and channels, which is likely to help improve its organic sales performance in the near term.
The company remains focused on innovation across its adjacent categories and product segments. In this regard, the premiumization of its Oral Care portfolio through major innovation bodes well. The company’s recent buyout of Hello Products LLC to expand its already strong oral care portfolio is performing well. Other notable efforts include the re-launch of Colgate Total and Hill’s Science Diet as well as the continued expansion of the Naturals and Therapeutics divisions. Additionally, it continues to expand the Naturals toothpaste and prescription diet.
Moreover, a solid online show on the back of a sudden spike in demand for essential needs, stemming from the ongoing COVID-19 pandemic, has been aiding the top line. This led the e-commerce business to grow more than 50% in the second quarter, backed by strength in Hill’s and U.S. businesses. Encouragingly, the company has been expanding the availability of its products through the e-commerce offerings with the launch of Hill’s to home, which enables pet parents to purchase prescription diet products directly from their veterinarians with home delivery options.
Hurdles on The Way
Colgate is reeling under high costs and adverse currency rates. Speaking of costs, elevated SG&A expenses may be attributed to increased advertising investment and higher logistics cost stemming from a spike in demand due to COVID-19. Also, unfavorable foreign currency impacted sales across all geographic regions in the second quarter. For 2020, management continues to expect a mid-single-digit negative impact related to foreign exchange on net sales for 2020, based on current spot rates.
Bottom Line
Despite these downsides, we hope that a solid top line, driven by pricing gains and rising demand, is likely to help the company maintain momentum amid this crisis. In fact, the stock’s VGM Score of A and long-term earnings growth rate of 5.9% reflect its inherent strength. Also, the stock is hovering close to its 52-week high of $77.46.
3 Stocks to Watch
TreeHouse Foods (THS - Free Report) currently has an expected long-term earnings growth rate of 7.7% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Helen of Troy Limited (HELE - Free Report) currently has an expected long-term earnings growth rate of 6.5% and a Zacks Rank #2 (Buy).
Campbell Soup Company (CPB - Free Report) has a long-term earnings growth rate of 8.3% and a Zacks Rank #2.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2020?
Last year's 2019 Zacks Top 10 Stocks portfolio returned gains as high as +102.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2020 today >>