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Here's Why Investors Should Hold Colgate (CL) Stock for Now
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Colgate-Palmolive Company (CL - Free Report) looks well-poised on the back of robust pricing actions and revenue management initiatives, which have been driving organic sales growth. Organic sales grew for the 16th successive quarter in fourth-quarter 2022, with improvements in all divisions and categories. Innovation, brand strength and digital capabilities also drove organic sales growth.
Colgate is on track to improve product availability through enhanced distribution to newer markets and channels.
Driven by these factors, Colgate’s net sales improved 5% year over year and surpassed the Zacks Consensus Estimate in fourth-quarter fiscal 2022. Bold pricing actions and accelerated revenue growth management plans were the key drivers. Revenue growth management initiatives led to double-digit pricing gains worldwide in the fiscal fourth quarter. CL issued encouraging guidance for 2023.
An uptrend in the Zacks Consensus Estimate for the Zacks Rank #3 (Hold) company echoes a positive sentiment. The Zacks Consensus Estimate for Colgate’s 2023 sales and EPS suggests growth of 4.6% and 4.4%, respectively, from the year-ago period’s reported numbers.
However, higher raw material and logistic costs worldwide have led to gross and operating margin contractions for the past few quarters. Notably, the company’s earnings were in line with the Zacks Consensus Estimate in the fiscal fourth quarter but declined year over year.
The stock has gained 4.6% in the past six months compared with the industry’s growth of 13.5%. The stock also compared unfavorably with the Consumer Staples sector’s growth of 8.8% and the S&P 500’s rally of 8%.
Image Source: Zacks Investment Research
Factors Driving Growth
Innovation and in-store implementation have been the guiding principles for Colgate’s growth strategy over the years. The company’s innovation strategy is focused on growing in adjacent categories and product segments.
It is also focused on the premiumization of its Oral Care portfolio through major innovations. Products, including CO. by Colgate, Colgate Elixir toothpaste and Colgate enzyme whitening toothpaste, have been performing well, backed by premium innovation.
The company is on track to launch Optic White Renewal and then Optify Pro Series in the United States or the new MPS whitening technology to drive long-term growth. CL’s at-home whitening and professional whitening products bode well.
Its innovation efforts are highlighted by the continued expansion of the Naturals and Therapeutics divisions, as well as the Hello Products LLC buyout. The company recently partnered with Philips to introduce electric toothbrushes in Latin America, where the use of electric toothbrushes is low. This long-term deal will bring together world’s number one oral care brand and number one manufacturer of sonic toothbrushes under a co-brand — Philips Colgate. The product line will come with a variety of electric toothbrushes at different prices. Further, the new brand will be available in limited countries in the said region.
Expanding the availability of products through enhanced distribution to newer markets and channels is one of Colgate’s priorities to improve organic sales. The company is aggressively expanding into faster-growth channels, while extending the geographic footprint of its brands. It is witnessing strong market share gains in North America and China, its two largest markets, with increased share gains across all other regions.
Colgate’s Hill's business continues to witness sales momentum, with sales growth of 20% in the fiscal fourth quarter and organic sales growth of 14%. Results have gained from a 13.5% increase in pricing, volume growth of 10% on a reported basis and 0.5% on an organic volume basis, partly offset by a 3.5% adverse currency impact. Organic sales were aided by gains in the United States and Europe.
Strength in oral care and pet nutrition are key growth drivers. The company’s newly launched Prescription Diet Derm Complete has been gaining market share and is likely to be rolled out internationally in the coming quarters. Colgate is also focused on expanding the availability of its products through the e-commerce channel, as more consumers are using online services for their essential needs.
Management issued an optimistic view for 2023. The company anticipates sales growth of 2-5%, including gains from acquisitions of pet food businesses, offset by a low-single-digit adverse currency impact. Organic sales are expected to be at the high end of its long-term target of 3-5%. The company expects year-over-year reported gross margin expansion, higher advertising investment and double-digit reported bottom-line growth. Also, it predicts adjusted gross margin expansion, higher advertising investment and low to mid-single-digit adjusted bottom-line growth.
Headwinds to Overcome
Colgate has been largely impacted by the difficult raw material environment across the globe. In fourth-quarter fiscal 2022, the company continued to witness year-over-year increases in raw and packaging material, and logistic costs, as well as volatile currency. The gross profit margin contracted 250 basis points (bps) to 55.6%, both on a GAAP and an adjusted basis. The adjusted operating margin contracted 100 bps to 20.3%. Also, selling, general and administrative (SG&A) expenses grew 2.2% year over year.
Despite pricing gains, Colgate’s sales across some geographic regions continued to be hurt by adverse currency rates in fourth-quarter fiscal 2022. Unfavorable currency impacted revenues by 5% in the fourth quarter.
Inter Parfums currently sports a Zacks Rank #1 (Strong Buy). IPAR has a trailing four-quarter earnings surprise of 36.2%, on average. Shares of Inter Parfums have rallied 81.6% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and earnings suggests growth of 10.5% and 0.8%, respectively, from the year-ago period's reported figures. It has a long-term earnings growth rate of 15%.
Clorox has a Zacks Rank #2 (Buy) at present. Shares of CLX have risen 20.2% in the past six months. The company has a trailing four-quarter earnings surprise of 27.8%, on average.
The Zacks Consensus Estimate for Clorox’s current-year sales and EPS suggests growth of 0.5% and 3.2%, respectively, from the year-ago reported figures. It has a long-term earnings growth rate of 11.7%.
Coty currently carries a Zacks Rank of 2. COTY has a trailing four-quarter earnings surprise of 24.2%, on average. Shares of COTY have rallied 72.5% in the past six months.
The Zacks Consensus Estimate for Coty’s current financial-year sales and EPS suggests growth of 1.1% and 32.1%, respectively, from the year-ago period's reported numbers. It has a long-term earnings growth rate of 14.7%.
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Here's Why Investors Should Hold Colgate (CL) Stock for Now
Colgate-Palmolive Company (CL - Free Report) looks well-poised on the back of robust pricing actions and revenue management initiatives, which have been driving organic sales growth. Organic sales grew for the 16th successive quarter in fourth-quarter 2022, with improvements in all divisions and categories. Innovation, brand strength and digital capabilities also drove organic sales growth.
Colgate is on track to improve product availability through enhanced distribution to newer markets and channels.
Driven by these factors, Colgate’s net sales improved 5% year over year and surpassed the Zacks Consensus Estimate in fourth-quarter fiscal 2022. Bold pricing actions and accelerated revenue growth management plans were the key drivers. Revenue growth management initiatives led to double-digit pricing gains worldwide in the fiscal fourth quarter. CL issued encouraging guidance for 2023.
An uptrend in the Zacks Consensus Estimate for the Zacks Rank #3 (Hold) company echoes a positive sentiment. The Zacks Consensus Estimate for Colgate’s 2023 sales and EPS suggests growth of 4.6% and 4.4%, respectively, from the year-ago period’s reported numbers.
However, higher raw material and logistic costs worldwide have led to gross and operating margin contractions for the past few quarters. Notably, the company’s earnings were in line with the Zacks Consensus Estimate in the fiscal fourth quarter but declined year over year.
The stock has gained 4.6% in the past six months compared with the industry’s growth of 13.5%. The stock also compared unfavorably with the Consumer Staples sector’s growth of 8.8% and the S&P 500’s rally of 8%.
Image Source: Zacks Investment Research
Factors Driving Growth
Innovation and in-store implementation have been the guiding principles for Colgate’s growth strategy over the years. The company’s innovation strategy is focused on growing in adjacent categories and product segments.
It is also focused on the premiumization of its Oral Care portfolio through major innovations. Products, including CO. by Colgate, Colgate Elixir toothpaste and Colgate enzyme whitening toothpaste, have been performing well, backed by premium innovation.
The company is on track to launch Optic White Renewal and then Optify Pro Series in the United States or the new MPS whitening technology to drive long-term growth. CL’s at-home whitening and professional whitening products bode well.
Its innovation efforts are highlighted by the continued expansion of the Naturals and Therapeutics divisions, as well as the Hello Products LLC buyout. The company recently partnered with Philips to introduce electric toothbrushes in Latin America, where the use of electric toothbrushes is low. This long-term deal will bring together world’s number one oral care brand and number one manufacturer of sonic toothbrushes under a co-brand — Philips Colgate. The product line will come with a variety of electric toothbrushes at different prices. Further, the new brand will be available in limited countries in the said region.
Expanding the availability of products through enhanced distribution to newer markets and channels is one of Colgate’s priorities to improve organic sales. The company is aggressively expanding into faster-growth channels, while extending the geographic footprint of its brands. It is witnessing strong market share gains in North America and China, its two largest markets, with increased share gains across all other regions.
Colgate’s Hill's business continues to witness sales momentum, with sales growth of 20% in the fiscal fourth quarter and organic sales growth of 14%. Results have gained from a 13.5% increase in pricing, volume growth of 10% on a reported basis and 0.5% on an organic volume basis, partly offset by a 3.5% adverse currency impact. Organic sales were aided by gains in the United States and Europe.
Strength in oral care and pet nutrition are key growth drivers. The company’s newly launched Prescription Diet Derm Complete has been gaining market share and is likely to be rolled out internationally in the coming quarters. Colgate is also focused on expanding the availability of its products through the e-commerce channel, as more consumers are using online services for their essential needs.
Management issued an optimistic view for 2023. The company anticipates sales growth of 2-5%, including gains from acquisitions of pet food businesses, offset by a low-single-digit adverse currency impact. Organic sales are expected to be at the high end of its long-term target of 3-5%. The company expects year-over-year reported gross margin expansion, higher advertising investment and double-digit reported bottom-line growth. Also, it predicts adjusted gross margin expansion, higher advertising investment and low to mid-single-digit adjusted bottom-line growth.
Headwinds to Overcome
Colgate has been largely impacted by the difficult raw material environment across the globe. In fourth-quarter fiscal 2022, the company continued to witness year-over-year increases in raw and packaging material, and logistic costs, as well as volatile currency. The gross profit margin contracted 250 basis points (bps) to 55.6%, both on a GAAP and an adjusted basis. The adjusted operating margin contracted 100 bps to 20.3%. Also, selling, general and administrative (SG&A) expenses grew 2.2% year over year.
Despite pricing gains, Colgate’s sales across some geographic regions continued to be hurt by adverse currency rates in fourth-quarter fiscal 2022. Unfavorable currency impacted revenues by 5% in the fourth quarter.
Stocks to Consider
Some better-ranked stocks that investors may consider are Inter Parfums (IPAR - Free Report) , Clorox (CLX - Free Report) and Coty (COTY - Free Report) .
Inter Parfums currently sports a Zacks Rank #1 (Strong Buy). IPAR has a trailing four-quarter earnings surprise of 36.2%, on average. Shares of Inter Parfums have rallied 81.6% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and earnings suggests growth of 10.5% and 0.8%, respectively, from the year-ago period's reported figures. It has a long-term earnings growth rate of 15%.
Clorox has a Zacks Rank #2 (Buy) at present. Shares of CLX have risen 20.2% in the past six months. The company has a trailing four-quarter earnings surprise of 27.8%, on average.
The Zacks Consensus Estimate for Clorox’s current-year sales and EPS suggests growth of 0.5% and 3.2%, respectively, from the year-ago reported figures. It has a long-term earnings growth rate of 11.7%.
Coty currently carries a Zacks Rank of 2. COTY has a trailing four-quarter earnings surprise of 24.2%, on average. Shares of COTY have rallied 72.5% in the past six months.
The Zacks Consensus Estimate for Coty’s current financial-year sales and EPS suggests growth of 1.1% and 32.1%, respectively, from the year-ago period's reported numbers. It has a long-term earnings growth rate of 14.7%.