We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Can Colgate's (CL) Cost-Savings Programs Offset Margin Woes?
Read MoreHide Full Article
Colgate-Palmolive Company (CL - Free Report) has been battling margin pressures for the past few quarters now, mainly due to increase in raw material expenses. In fourth-quarter 2018, the company marked its fifth straight quarter of gross margin contraction, with the seventh consecutive quarter of operating margin decline.
Gross margin in the fourth quarter contracted 100 basis points (bps) due to higher raw and packaging material expenses. Lower gross margin coupled with higher selling, general & administrative expenses, as a percentage of sales, resulted in operating margin contraction of 210 bps. We expect the company’s soft margin trend to continue in 2019 as raw material expenses are likely to increase.
Moreover, higher raw material costs along with increase in tax rate, and adverse currency fluctuations and pricing are likely to hurt the bottom line. Apparently, adjusted earnings per share for 2019 are expected to decline in a mid-single digit.
In fact, Colgate’s vast global footprint exposes it to various risks including foreign currency translations. Unfavorable foreign currency mainly impacted the company’s fourth-quarter results and will continue to hurt earnings and sales in 2019. It expects negative currency impacts of about 2-2.5% in the current year.
A glance at the company’s price performance in a month shows that the stock has gained a meager 2.1%. In a year’s time, shares of this Zacks Rank #4 (Sell) company have lost 6.1% against the industry’s 15.5% rally. This underperformance can be attributed to Colgate’s sales surprise history. The company missed the Zacks Consensus Estimate for sales in 21 of the trailing 23 quarters.
Can Colgate’s Savings Efforts Drive Margins?
While the above-mentioned factors make us apprehensive about Colgate’s performance, the company seems to be on track with its savings programs and other strategic efforts. Notably, the Global Growth and Efficiency Program or 2012 Restructuring Program and the Funding the Growth initiatives are boding well for the company.
In fact, the success of the Global Growth and Efficiency Program prompted the company’s board to approve expansion and extension of the program through Dec 31, 2019. This, in turn, will enable Colgate to streamline its operations. It expects after-tax savings of $500-$575 million annually from the program.
In addition, Colgate’s innovation strategy is focused on growing in adjacent categories and product segments. In 2019, the company will re-launch Colgate Total and Hill’s Science Diet, as well as continue with the expansion of the Naturals range. In 2018, it rolled out the Naturals offerings in toothpastes across 79 countries. Colgate continues to expand the Naturals toothpastes, based on local insights, with the launch of the charcoal range across many countries.
Markedly, the Naturals range is a key area of focus in personal and home care categories. Product innovation and launch are likely to drive the company’s top line as evident from management’s expectations. It expects robust sales in 2019 backed by accelerated investments in brands, higher pricing and strong innovation.
We expect Colgate’s savings and innovation efforts to boost margins and overall profitability in the future.
Want Better-Ranked Consumer Staples Stocks? Check These
MGP Ingredients, Inc. (MGPI - Free Report) , also a Zacks Ranked #1 stock, which has delivered average positive earnings surprise of 2.4% in the last four quarters.
Sysco Corporation (SYY - Free Report) has a long-term earnings growth rate of 10.3%. The company carries a Zacks Rank #2 (Buy).
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
Image: Bigstock
Can Colgate's (CL) Cost-Savings Programs Offset Margin Woes?
Colgate-Palmolive Company (CL - Free Report) has been battling margin pressures for the past few quarters now, mainly due to increase in raw material expenses. In fourth-quarter 2018, the company marked its fifth straight quarter of gross margin contraction, with the seventh consecutive quarter of operating margin decline.
Gross margin in the fourth quarter contracted 100 basis points (bps) due to higher raw and packaging material expenses. Lower gross margin coupled with higher selling, general & administrative expenses, as a percentage of sales, resulted in operating margin contraction of 210 bps. We expect the company’s soft margin trend to continue in 2019 as raw material expenses are likely to increase.
Moreover, higher raw material costs along with increase in tax rate, and adverse currency fluctuations and pricing are likely to hurt the bottom line. Apparently, adjusted earnings per share for 2019 are expected to decline in a mid-single digit.
In fact, Colgate’s vast global footprint exposes it to various risks including foreign currency translations. Unfavorable foreign currency mainly impacted the company’s fourth-quarter results and will continue to hurt earnings and sales in 2019. It expects negative currency impacts of about 2-2.5% in the current year.
A glance at the company’s price performance in a month shows that the stock has gained a meager 2.1%. In a year’s time, shares of this Zacks Rank #4 (Sell) company have lost 6.1% against the industry’s 15.5% rally. This underperformance can be attributed to Colgate’s sales surprise history. The company missed the Zacks Consensus Estimate for sales in 21 of the trailing 23 quarters.
Can Colgate’s Savings Efforts Drive Margins?
While the above-mentioned factors make us apprehensive about Colgate’s performance, the company seems to be on track with its savings programs and other strategic efforts. Notably, the Global Growth and Efficiency Program or 2012 Restructuring Program and the Funding the Growth initiatives are boding well for the company.
In fact, the success of the Global Growth and Efficiency Program prompted the company’s board to approve expansion and extension of the program through Dec 31, 2019. This, in turn, will enable Colgate to streamline its operations. It expects after-tax savings of $500-$575 million annually from the program.
In addition, Colgate’s innovation strategy is focused on growing in adjacent categories and product segments. In 2019, the company will re-launch Colgate Total and Hill’s Science Diet, as well as continue with the expansion of the Naturals range. In 2018, it rolled out the Naturals offerings in toothpastes across 79 countries. Colgate continues to expand the Naturals toothpastes, based on local insights, with the launch of the charcoal range across many countries.
Markedly, the Naturals range is a key area of focus in personal and home care categories. Product innovation and launch are likely to drive the company’s top line as evident from management’s expectations. It expects robust sales in 2019 backed by accelerated investments in brands, higher pricing and strong innovation.
We expect Colgate’s savings and innovation efforts to boost margins and overall profitability in the future.
Want Better-Ranked Consumer Staples Stocks? Check These
Medifast, Inc. (MED - Free Report) has an impressive long-term earnings growth rate of 20% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
MGP Ingredients, Inc. (MGPI - Free Report) , also a Zacks Ranked #1 stock, which has delivered average positive earnings surprise of 2.4% in the last four quarters.
Sysco Corporation (SYY - Free Report) has a long-term earnings growth rate of 10.3%. The company carries a Zacks Rank #2 (Buy).
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>