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Factors Likely to Shape Colgate's (CL) Q1 Earnings Outcome

Zacks Equity Research

Colgate-Palmolive Company CL is scheduled to report first-quarter 2019 numbers on Apr 26, before the opening bell.

The company is popular among investors for its meet or beat earnings track record. Colgate posted in-line earnings in two of the last four quarters and it beat estimates in the remaining two. Consequently, it delivered average beat of 0.7% 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 this consumer goods giant will be able to deliver a positive earnings surprise in the first quarter of 2019. The Zacks Consensus Estimate for the quarter under review is pegged at 66 cents, indicating a decline of 10.8% compared with the year-ago quarter. However, estimates remained unchanged in the last 30 days. The Zacks Consensus Estimate for revenues is pegged at $3.87 billion, down 3.4% from the year-ago quarter.

Colgate-Palmolive Company Price and EPS Surprise

 

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

Factors at Play

Colgate’s robust earnings picture is a result of smooth progress on the Global Growth and Efficiency Program, which focuses on reducing structural costs to improve profitability, standardizing processes to improve decision-making procedure and increasing market share worldwide. Further, the company is looking to lower the ongoing impact of fuel and transportation costs on earnings through the Funding the Growth initiative. These along with the company’s brand building and productivity maximization initiatives should drive bottom-line growth in the first quarter of 2019.

However, Colgate has been battling margin pressure for the past few quarters now, mainly due to increase in raw material expenses, which is likely to show on the quarterly results. Higher raw material costs along with increase in tax rate, and adverse currency fluctuations and pricing are also likely to hurt the bottom line. Apparently, adjusted earnings per share for 2019 are expected to decline in a mid-single digit.

Furthermore, Colgate’s vast global footprint exposes it to various risks, including foreign currency translations. Unfavorable foreign currency mainly impacted the company’s fourth-quarter results and will continue to hurt earnings and sales in 2019. It expects negative currency impact of about 2-2.5% for the current year.

These forecasts for 2019 clearly indicate that the company is set to report a soft first-quarter 2019, in terms of margin contraction and continued impacts from foreign currency. However, we remain optimistic about its growth efforts and continue to have faith in the bottom-line surprise trend, which has been impressive over the years.

Additionally, Colgate stock has surged 4.7% in the past month, comfortably outperforming the industry’s growth of 3.4%. This indicates a positive sentiment on the stock ahead of the earnings release.



What the Zacks Model Unveils

Our proven model does not clearly show that Colgate is likely to beat earnings estimates this quarter. This is because a stock needs to have — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Colgate currently has a Zacks Rank #3 and an Earnings ESP of 0.00%. While the company’s favorable Zacks Rank increases the predictive power of ESP, an Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks With Favorable Combination

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

The Estee Lauder Companies Inc. EL has an Earnings ESP of +1.16% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Amazon.com, Inc. AMZN has an Earnings ESP of +10.65% and a Zacks Rank of 2.

Altria Group, Inc. MO has an Earnings ESP of +0.05% and a Zacks Rank #3.

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