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Is Colgate (CL) Poised for Another Earnings Surprise in Q1?

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Colgate-Palmolive Company CL is slated to report first-quarter 2018 results on Apr 27, before the market opens. Last quarter, the company’s earnings came in line with the Zacks Consensus Estimate.

Colgate has been popular with investors for its meet or beat earnings track record. Notably, it delivered in-line earnings for the third consecutive quarter in fourth-quarter 2017. Moreover, the company delivered an average positive surprise of 0.38% in the trailing four quarters. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The question lingering in investors’ minds is whether or not this consumer goods behemoth will be able to deliver a positive earnings surprise in the quarter to be reported. The current Zacks Consensus Estimate for the quarter under review is pegged at 73 cents, which reflects growth of nearly 9% from the year-ago period. However, the earnings estimate has declined by a penny in the last 30 days. Notably, analysts polled by Zacks expect revenues of $4.01 billion, up 6.6% from the year-ago quarter.

Colgate-Palmolive Company Price, Consensus and EPS Surprise

Colgate-Palmolive Company Price, Consensus and EPS Surprise | Colgate-Palmolive Company Quote

Factors Driving This Quarter’s Results

Colgate is encouraged by the smooth progress on its savings plan. Further, it is progressing well with its Global Growth and Efficiency Program, along with additional savings anticipated from the recent expansion of the program. It remains confident of the brand building and productivity maximization initiatives, which are likely to boost results in 2018.

Consequently, the company expects net sales to increase in the mid-single-digit range and organic sales growth in low- to mid-single digit this year. The company anticipates strong volumes and pricing growth in 2018. Further, it projects gross margin to expand, driven by robust pricing and productivity gains from the funding-the-growth initiatives. These factors, along with benefits from the tax reform, are expected to boost GAAP earnings in double-digits, while adjusted earnings are anticipated to increase nearly 10%.

However, Colgate has been witnessing strained margins, of late, due to higher raw material and packaging costs, as well as advertising expenses. Though the company expects improved adjusted gross margin in 2018, it anticipates advertising costs to remain high, which might hurt the operating margin. Moreover, it expects the backdrop to remain challenging in 2018.

Given the mixed sentiment, the company’s shares have declined 10.5%, year to date. However, this compares favorably to the industry’s decline of 12.4%.

What the Zacks Model Unveils?

Our proven model shows that Colgate is likely to beat earnings estimates because it has the right combination of two key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. The company has an Earnings ESP of +0.69%. This, along with the company’s Zacks Rank #3, makes us reasonably confident of 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

Here are some other companies you may want to consider as our model shows that these also have the right combination of elements to post an earnings beat:

The Coca-Cola Company KO has an Earnings ESP of +0.24% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Boston Beer Company Inc. SAM has an Earnings ESP of +35.65% and a Zacks Rank #3.

The Estée Lauder Companies Inc. EL has an Earnings ESP of +0.46% and a Zacks Rank #3.

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