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Here's Why Colgate (CL) is Well-Poised for Earnings Beat in Q4

Colgate-Palmolive Company CL is expected to register top-line growth when it reports fourth-quarter 2022 numbers on Jan 27, before the opening bell. The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $4.6 billion, which indicates a rise of 3.3% from the prior-year quarter’s reported figure.

The Zacks Consensus Estimate for the company’s earnings is pegged at 76 cents per share, suggesting a decline of 3.8% from the prior-year quarter’s reported figure. The consensus mark for earnings has moved down by a penny in the past seven days.

We expect the company’s fourth-quarter net sales to increase 0.7% year over year to $4,432.5 million and the bottom line to decline 3.9% to 76 cents per share. For 2022, we estimate year-over-year revenue growth of 2% to $17,770.5 million, with a year-over-year earnings decline of 7.8% to $2.96.

In the last reported quarter, the company reported earnings in line with the Zacks Consensus Estimate. It has delivered an earnings surprise of 0.4%, on average, in the trailing four quarters.

ColgatePalmolive Company Price and EPS Surprise

 

ColgatePalmolive Company Price and EPS Surprise
ColgatePalmolive Company Price and EPS Surprise

ColgatePalmolive Company price-eps-surprise | ColgatePalmolive Company Quote

Key Aspects to Note

The leading global consumer products company is expected to have gained from consumer demand for personal care, hygiene and home care products. Colgate’s top line in the fourth quarter is likely to have benefited from innovation, brand strength and focus on premiumization and digital transformation. The company’s stringent pricing actions and accelerated revenue growth management plans are likely to have boosted the top line in the to-be-reported quarter.

Colgate has been focusing on the premiumization of its Oral Care portfolio through major innovations. Its premium innovation products, including CO. by Colgate, Colgate Elixir toothpaste and Colgate enzyme whitening toothpaste, have been performing well. This is expected to have boosted organic sales growth for its oral care business in the fourth quarter. We anticipate organic sales growth of 7.8% for the fourth quarter and 6.9% for 2022.

Colgate has been on track with its efforts to improve product availability through enhanced distribution to newer markets and channels. The company has been aggressively expanding into faster growth channels, while extending the geographic footprint of its brands. Colgate has also been focused on expanding the availability of its products through the e-commerce channel, as more consumers have been using online services for their essential needs. Gains from the company’s expansion efforts are likely to get reflected in the to-be-reported quarter’s results.

Colgate’s Hill's business has been witnessing momentum, which is expected to have delivered sales growth in the fourth quarter. Strength in Hill's Prescription Diet and Hill's Science Diet has been aiding sales for the segment. The company’s newly launched Prescription Diet Derm Complete has been gaining market share. This is expected to have boosted sales in the fourth quarter.

On the last reported quarter’s earnings call, management anticipated net sales growth in the middle of previously mentioned 1-4% growth for 2022. This included a modest benefit from the Red Collar acquisition. Organic sales are expected to increase 6-7%. Advertising investments are expected to be nearly flat year over year (on a dollar basis) on both GAAP and adjusted basis for 2022. Advertising, as a percentage of net sales, is expected to be down slightly for 2022, driven by reductions in Europe.

The company anticipated earnings growth in the double-digits on a GAAP basis for 2022. For the fourth quarter, it anticipates the production of pet food for Red Collar to add 200 bps to net sales and be neutral to earnings per share.

However, higher raw material and logistic costs worldwide have been concerning despite sales growth. Each of the company’s segments has been incurring significantly higher raw and packaging material costs. Higher logistics costs have been resulting from volume and capacity constraints in the shipping and logistics industry, higher e-commerce demand, and the impacts of the Ukraine war. These headwinds are likely to have continued to impact the fourth-quarter and 2022 performance.

Moreover, the company has been witnessing a deleverage in advertising and SG&A expenses, which have been weighing on margins. These costs and headwinds are likely to have hurt the bottom-line performance in the to-be-reported quarter.

Although Colgate expected to witness reduced impacts of logistic-related headwinds on a sequential basis, it anticipated logistic costs to increase year over year in the fourth quarter. For the quarter, the company anticipates the production of pet food for Red Collar to have a 100-bps negative impact on the gross margin. Colgate expects a gross margin decline on both GAAP and adjusted basis for 2022.

What the Zacks Model Unveils

Our proven model conclusively predicts an earnings beat for Colgate this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. 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 +2.13%.

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:

Clorox CLX currently has an Earnings ESP of +4.22% and a Zacks Rank #3. CLX is anticipated to register top and bottom-line declines when it reports fourth-quarter 2022 results. The Zacks Consensus Estimate for Clorox’s quarterly revenues is pegged at $1.66 million, indicating a decline of 1.7% from the figure reported in the prior-year quarter.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Clorox’s bottom line has been unchanged in the past 30 days at 65 cents per share. However, the consensus estimate for CLX suggests a decline of 1.5% from the year-ago quarter’s reported figure. CLX has delivered an earnings beat of 11.2%, on average, in the trailing four quarters.

Church & Dwight Co. CHD currently has an Earnings ESP of +1.16% and a Zacks Rank #3. CHD is likely to register top-line growth when it reports the fourth-quarter 2022 numbers. The Zacks Consensus Estimate for its quarterly revenues is pegged at $1.39 billion, which suggests growth of 1.7% from the figure reported in the prior-year quarter.

However, the Zacks Consensus Estimate for Church & Dwight’s quarterly earnings has been unchanged in the past 30 days at 60 cents per share, suggesting a decline of 6.3% from the year-ago quarter’s reported number. CHD has delivered an earnings beat of 10.9%, on average, in the trailing four quarters.

Altria Group MO currently has an Earnings ESP of +0.14% and a Zacks Rank of 3. The company is expected to register top and bottom-line growth when it reports the fourth-quarter 2022 numbers. The Zacks Consensus Estimate for MO’s quarterly revenues is pegged at $5.16 billion, which suggests growth of 1.5% from the prior-year quarter’s reported figure.

The Zacks Consensus Estimate for Altria’s quarterly earnings has moved up by a penny in the past seven days to $1.18 per share. However, the consensus estimate for MO suggests 8.3% growth from the year-ago reported number. MO has delivered an earnings beat of 0.3%, on average, in the trailing four quarters.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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Altria Group, Inc. (MO) : Free Stock Analysis Report

ColgatePalmolive Company (CL) : Free Stock Analysis Report

The Clorox Company (CLX) : Free Stock Analysis Report

Church & Dwight Co., Inc. (CHD) : Free Stock Analysis Report

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