Colgate-Palmolive Company CL is benefiting from its focus on accelerated investments in brands, pricing and innovation along with expansion in new markets and e-commerce. We note that shares of this New York based company have advanced 23.4% year to date compared with the industry’s growth of 22.6%.
This Zacks Rank #2 (Buy) stock has also comfortably outperformed the Consumer Staples sector and the S&P 500 Index that rallied 15.6% and 13.4%, respectively. Further, the stock is hovering close to its 52-week high of $76.41. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Strategic Endeavors to Drive Momentum
Colgate is on track with product innovation as part of its growth strategy over the years. This is clear from the re-launch of Colgate Total and Hill’s Science Diet, as well as the continued expansion of the Naturals and Therapeutics divisions. Notably, the initial response to the re-launch of Hill’s Science Diet has been positive, with improved market share in the second quarter. The company expects to continue the re-launch globally through the first half of 2020.
Further, the company continues to expand the Naturals toothpaste, with the solid progress of the charcoal launches worldwide. In Latin America, the company’s Oral Care innovations bore fruit, with market share gains in Colgate Total. Personal Care premium innovation and revenue growth management fueled robust pricing growth in the region. Additionally, the Naturals range is a key area of focus for the company in personal and home care categories.
In 2019, Colgate continues to expand its 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. Further, the company is on track to expand its premium skincare portfolio with its agreement to buy the Filorga skincare business.
The company is focused on its expansion plan to improve organic sales performance. In the second quarter, its organic sales improved 4% mainly driven by a 1% increase in global unit volume and 3% rise in pricing. In 2019, the company expects gains from pricing and productivity programs to offset increase in raw material costs, including the impact of transnational foreign exchange.
Notably, the company’s commitment toward pricing efforts through premiumization and revenue growth management has been paying off in relation to organic sales and gross margin.
It is progressing well with its savings programs — Global Growth and Efficiency Program or 2012 Restructuring Program and Funding the Growth program — which are delivering impressive results. In 2019, management expects gross margin expansion, both on a GAAP and adjusted basis.
The company’s four-year Global Growth and Efficiency Program 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 expected to contribute significantly toward the improvement of gross and operating margins over the long term.
Apart from these, the company is expanding the availability of its products through the e-commerce offerings with the launch of Hill’s to home, which will enable pet parents to purchase prescription diet products directly from their veterinarian, with home delivery option. This should enable it to deliver strong e-commerce growth in the current year. All these actions are likely to drive top-line growth in 2019.
As already detailed, we expect Colgate to witness momentum in the quarters ahead driven by expansion across global markets, along with focus on product innovation and pricing actions. These growth drivers should offset any hurdle arising from adverse currency rates and increased input costs.
3 Other Stocks to Watch
Church & Dwight Co., Inc. CHD has a long-term earnings growth rate of 8.7% and currently carries a Zacks Rank #2.
The Procter & Gamble Company PG has a long-term earnings growth rate of 7.1% and a Zacks Rank #2.
Deckers Outdoor Corporation DECK has a long-term earnings growth rate of 12.1% and a Zacks Rank #2 at present.
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