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Colgate (CL) Invests in Pet Business to Cater to Growing Demand

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Colgate-Palmolive Company’s CL Hill’s Pet Nutrition business segment revealed plans to invest in a new factory to meet customers’ growing demand. The state-of-the-art facility worth $250 million will be built in Leavenworth County, KS. The construction of the facility is expected to be completed by 2023. This move will also create 80 new jobs in the city of Tonganoxie.

This facility will enable Hill’s Pet Nutrition to offer high-quality nutrition for pets. Further, the latest development will help meet the demand for its products, which are highly recommended by veterinarians. This factory, construction of which is likely to start later this year, will house the latest manufacturing technology. Apart from these, the facility will be the fifth Hill's manufacturing sites in the United States, with the others being at Emporia and Topeka, KS.

Speaking of the Topeka facility, it is the global headquarter for Hill’s Pet Nutrition. The company, in its recent press release, highlighted that it has introduced a new small paws facility in Topeka to provide products for small dogs.

Colgate has been long gaining from strength in its Hill’s Pet Nutrition unit. Gains from this segment were also reflected in the company’s e-commerce business during first-quarter 2021. Notably, first-quarter 2021 sales for this unit grew 9.5% year over year on a reported basis and 7% on an organic basis, with a solid performance in the United States, Europe and Canada.

What’s More?

Colgate seems well positioned for long-term growth on the back of continued demand for its products since the onset of the pandemic. Moreover, its pricing efforts through premiumization and revenue growth management have been paying off. Also, its funding-the-growth initiatives bode well. These have resulted in organic sales growth and gross margin expansion, which in turn led to bottom-line growth in the first quarter.

Further, it is focused on the premiumization of its Oral Care portfolio through major innovation. Backed by premium innovation, the company delivered high-single-digit growth in toothpaste in the first quarter. This along with gains from innovation like Colgate Renewal in the United States, Colgate Enzyme Whitening toothpaste in China and the natural extracts line and Colgate Total Anti-Tartar Line in Latin America also helped it achieve high-single-digit growth in the Oral Care business.

Also, 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 usage of electric toothbrushes is low. This long-term deal will bring together the world’s number one oral care brand and the number one manufacturer of sonic toothbrushes under a co-brand, namely Philips Colgate.

Moreover, the company remains optimistic about the performance of its professional skincare businesses — Elta MD and PCA Skin — in spas and dermatology clinics. Further, the company expanded its premium skincare portfolio with the buyout of the Filorga skincare business. Also, it is witnessing strong market share gains in North America and China, its two largest markets, with increased share gains across all other regions.

Management predicts 2021 net sales growth of 4-7%, with a low-single-digit favorable currency impact. Organic sales are likely to rise 3-5%, which is within its long-term target range. Further, it expects gross margin expansion on both GAAP and adjusted basis, with an increase in advertising investments. It anticipates adjusted earnings per share are projected to grow in mid to high-single digits. The Zacks Rank #3 (Hold) stock has gained 7.5% in the past three months against the industry’s decline of 7.2%.

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However, Colgate continues to struggle with elevated costs stemming from investments related to product innovation and advertising as well as higher logistics costs. Going ahead, the company anticipates logistics costs to remain high, particularly in the United States where costs have risen faster than anticipated. Apart from these, raw-material cost inflation is likely to remain a headwind in 2021.

Stocks to Consider

Chewy CHWY has a long-term earnings growth rate of 20% and currently, a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Archer Daniels Midland ADM currently has an expected long-term earnings growth rate of 6.2% and a Zacks Rank #2.

Kirin Holdings Co. KNBWY, also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 21.3%.

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