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Colgate's (CL) Q4 Earnings In Line, Sales Beat Estimates

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Colgate-Palmolive Company CL has reported fourth-quarter 2020 results, wherein earnings came in-line with Zacks Consensus Estimate, while sales surpassed the same. Moreover, both top and bottom lines improved year over year. Despite the impacts of the pandemic, the company witnessed robust sales growth, with more than mid-single-digit growth in all segments, particularly double-digit growth in its Hill’s and Latin America businesses.

Moreover, demand remained strong for majority of its products stemming from the ongoing COVID-19 situation. Apart from these, an improved gross profit that led to a rise in operating profit and bottom-line growth, on a base business basis, along with new product launches and enhanced online facilities bodes well.

Shares of this Zacks Rank #3 (Hold) company have gained 13.9% in a year’s time, outperforming the industry’s growth of 5.9%.

Q4 in Detail

Adjusted earnings of 77 cents per share rose 5% from the prior-year quarter and came in-line with the Zacks Consensus Estimate. On a GAAP basis, earnings remained flat at 75 cents per share in the quarter under review.

Net sales of $4,324 million improved 7.5% from the year-ago period and beat the Zacks Consensus Estimate of $4,178 million. On an organic basis, the company’s sales advanced 8.5%. Organic sales were aided by improved volumes and higher pricing. Unit volumes increased 6% on a reported basis and 5% on an organic basis.

Further, pricing was up 3.5%. Organic sales growth was mainly led by strength in the Europe, Asia Pacific, North America and Hill’s segments. However, results were partly hurt by a 2% negative impact of foreign currency.

Adjusted gross profit margin of 61.1% increased 90 basis points (bps) from the prior-year quarter. In dollar terms, adjusted gross profit rose 9.4% to $2,643 million.

Adjusted selling, general & administrative (SG&A) expenses increased 17.1% year over year to $1,633 million. As a percentage of sales, SG&A expenses escalated 310 bps to 37.8%. Adjusted operating income of $969 million in the third quarter advanced 3% year over year. Meanwhile, adjusted operating margin contracted 100 bps to 22.4% due to higher SG&A expenses, which more than offset better margins.

Colgate’s market share of manual toothbrushes reached 31.1% year to date. Further, the company continued with its leadership position in the global toothpaste market, with a market share of 39.8%.

Segmental Discussion

North America’s net sales (25% of total sales) improved 10%, reflecting a 6.5% rise in unit volumes and 3.5% pricing gains. On an organic basis, sales grew 8.5%, with organic volumes up 5%, mainly driven by growth in the United States and Canada. Year to date, the company’s share in the toothpaste market is at 34.9% and in the manual toothbrush market, it is at 41% in the United States.

Latin America’s net sales (27.9% of total sales) dropped 2.5% year over year, as 9.5% gains in pricing and 1% volume growth were more than offset by a 13% negative currency impact. On an organic basis, sales were up 10.5%, led by growth in Brazil, Argentina, Mexico and Colombia. Organic volumes also grew 1% in the quarter.

Europe’s net sales (22.9% of total sales) increased 14% year over year on an 8.5% rise in unit volumes and a 6.5% gain from favorable currency exchange rates, which more than offset the 1% negative impact of pricing. Organic sales in Europe were up 4.5%, driven by a 5.5% increase in organic volumes as well as growth in France, Poland, the United Kingdom and Germany.

The Asia Pacific segment’s net sales (29.8% of total sales) improved 7% on a reported basis and 5% on an organic basis. This growth is attributable to a 4% rise in unit volumes (both reported and organic) and 1% pricing gains. Sales growth in the Asia Pacific was mainly led by India, Greater China and South Pacific.

Africa/Eurasia’s net sales (13.1% of total sales) decreased 1.5% year over year due to a 4.5% increase in unit volumes and 3.5% in pricing, offset by a 9.5% adverse impact from foreign exchange. Organic sales for Africa/Eurasia improved 8%, driven by gains in Russia and Turkey. Organic volumes in the region were up 4.5%.

Hill’s Pet Nutrition’s net sales (26% of total sales) grew 16% from the year-ago quarter on a reported basis and 14.5% on an organic basis. Results gained from an 11% increase in unit volumes (both reported and organic) and 3.5% pricing growth. Sales were aided by gains in the United States, Europe, Canada and Australia.

Other Financial Details

Colgate ended fourth-quarter 2020 with cash and cash equivalents of $888 million and total debt of $7,601 million. Net cash provided by operating activities amounted to $3,719 million as of Dec 21, 2020.

ColgatePalmolive Company Price, Consensus and EPS Surprise

ColgatePalmolive Company Price, Consensus and EPS Surprise
ColgatePalmolive Company Price, Consensus and EPS Surprise

ColgatePalmolive Company price-consensus-eps-surprise-chart ColgatePalmolive Company Quote


Backed by decent fourth-quarter results, Colgate issued its guidance for 2021. It predicts net sales growth of 4-7%, with a favorable currency impact. Organic sales are likely to rise 3-5%. Further, it expects gross margin expansion on both GAAP and adjusted basis, with an increase in advertising investments.

Additionally, the company anticipates GAAP earnings per share to increase in low to mid-single digit. Meanwhile, adjusted earnings per share are projected to grow in mid to high-single digit.

That said, management envisions a higher level of uncertainty related to COVID-19 in 2021. Also, volatility in raw material, higher logistics costs and currency headwinds remain concerns.

Stocks to Consider

Newell Brands NWL has a long-term earnings growth rate of 2.9%. The stock presently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

B&G Foods, Inc. BGS, again a Zacks Rank #1 company, delivered an earnings surprise of 9.3%, on average, in the trailing four quarters.

Nestle SA NSRGY has a long-term earnings growth rate of 4.4% and a Zacks Rank #2 (Buy).

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