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Check Out Colgate's (CL) Probability to Beat in Q2 Earnings

Zacks Equity Research

Colgate-Palmolive Company CL is scheduled to report second-quarter 2019 numbers on Jul 26, before the opening bell.

The company is popular among investors for its meet or beat earnings track record. Colgate posted in-line earnings in two of the last four quarters and beat estimates in the remaining two. Consequently, it delivered average earnings beat of 0.7% in the trailing four quarters.

Let’s see how things are shaping up prior to this announcement.

Estimate Picture

The question lingering in investors’ minds is whether this consumer goods giant will be able to deliver a positive earnings surprise in the second quarter of 2019. The Zacks Consensus Estimate for the company’s earnings for the quarter under review is pegged at 73 cents, indicating a decline of 5.2% from the year-ago quarter’s reported figure. However, estimates moved north by a penny in the last 7 days.

The consensus mark for Colgate’s revenues is pegged at $3,866 million, suggesting a decline of 0.3% from the year-ago quarter’s reported number.

Colgate-Palmolive Company Price, Consensus and EPS Surprise

 

Colgate-Palmolive Company Price, Consensus and EPS Surprise

Colgate-Palmolive Company price-consensus-eps-surprise-chart | Colgate-Palmolive Company Quote

Factors to Consider

The company is on track with Global Growth and Efficiency Program, which focuses on reducing structural costs to improve gross and operating profit, standardizing processes to improve the decision-making procedure, and increasing market share worldwide. It expects after-tax savings from this program to be $500-$575 million. Additionally, these programs are likely to contribute significantly toward the improvement of gross and operating margins over the long term. We note that the company has made significant progress on these efforts. This should slightly cushion the decline in margin in the second quarter despite soft margin projections.

Also, the company is focused on its expansion plans to improve organic sales performance. In 2019, it plans to expand the portfolio by introducing pharmacy brands like Elmex and Meridol to newer markets. It is also likely to increase investments in professional skincare businesses — Elta MD and PCA Skin — in spas and dermatologists.

Additionally, it is expanding e-commerce offerings with the launch of Hill’s to home. This platform will enable pet parents to purchase prescription diet products directly from their veterinarian, with a home delivery option. This should enable the company to deliver strong e-commerce growth in 2019. Such well-chalked efforts are likely to drive the top line in the second quarter.

However, Colgate has been battling margin pressure for the past few quarters now mainly due to increase in raw material expenses, which is likely to affect the quarterly results. Higher raw and packaging material costs, along with increase in tax rate and adverse currency fluctuations and pricing, are also likely to hurt the bottom line. Apparently, adjusted earnings per share for 2019 are expected to decline in a mid-single digit.

Moreover, Colgate’s vast global footprint exposes it to various risks, including foreign currency translations. Unfavorable foreign currency impacted the company’s first-quarter results. It will likely continue to hurt earnings and sales throughout 2019. The company expects negative currency impacts of about 2-2.5% in 2019.

These predictions for 2019 clearly indicate that Colgate is set to report a soft second-quarter 2019, in terms of margin contraction and continued impacts of foreign currency. However, we remain optimistic about its growth efforts and continue to have faith in the company’s bottom-line surprise trend, which has been impressive over the years.

What Does the Zacks Model Say?

Our proven model predicts that Colgate is likely to beat earnings estimates in the second quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Colgate’s Earnings ESP of +0.69% combined with its Zacks Rank #3 makes us reasonably confident about an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks With Favorable Combination

Church & Dwight Co., Inc. CHD currently has an Earnings ESP of +1.22% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Procter & Gamble Company PG has an Earnings ESP of +0.32% and a Zacks Rank #3 at present.

Monster Beverage Corporation MNST currently has an Earnings ESP of +2.24% and a Zacks Rank #3.

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