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Colgate-Palmolive's Outlook for 2019 Disappoints Investors

- By Sydnee Gatewood

Shares of consumer goods giant Colgate-Palmolive Co. (CL) fell 3% before the opening bell on Friday despite reporting strong fourth-quarter and full-year 2018 results.

The New York-based company, which produces everything from deodorant and toothpaste to cleaning products and pet food, posted adjusted earnings of 74 cents, narrowly topping Refinitiv's estimates of 73 cents. Revenue declined 2.1% from the prior-year quarter to $3.81 billion, but still beat expectations of $3.77 billion.


For the full year, Colgate-Palmolive recorded earnings of $2.75 per share on $15.5 billion in revenue.

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While the company recorded strong net sales growth during the quarter in its North America and Hill's Pet Nutrition divisions, revenue declined in all its remaining segments. In its largest market by revenue, Latin America, Colgate-Palmolive saw net sales drop 9%, while sales fell 2.5% in Europe, 6.5% in Asia and 5% in Africa/Eurasia.

The company, which is the world's largest manufacturer of toothpaste, has struggled with rising commodity and transportation costs, forcing it to raise prices. While the company maintained its lead in the toothpaste market, it is facing fierce competition from other major consumer goods companies like Procter & Gamble (PG) and Unilever (UN).

Despite the beat, shares slid on Colgate-Palmolive's outlook for 2019. It projects net sales growth to be flat to up low-single digits. Analysts were forecasting a 0.1% decline. The company also plans to spend more on advertising in order to keep its market share. This is expected to, along with higher material costs and fluctuating foreign exchange rates, cause a mid-single-digit decline in earnings per share for the year. Analysts were anticipating a 2.4% increase.

In a statement, Chairman and CEO Ian Cook also noted the company is "planning for a year of gross margin expansion."

"Our outlook reflects an increase in raw material prices, an increase in our tax rate year-over-year and the uncertainty surrounding the global economy, exchange rates and pricing," he said. "Given our plans to increase investment behind our brands to drive acceleration in organic sales growth, we believe our earnings outlook for 2019 is appropriate."

With a market cap of $53.42 billion, shares of Colgate-Palmolive were trading at $61.59 on Friday morning. GuruFocus estimates the stock tumbled 21% in 2018. Year to date, it is up approximately 5%.

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Disclosure: No positions.

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This article first appeared on GuruFocus.