Why You Must Consider Colgate (CL) Stock Before Q2 Earnings
Colgate-Palmolive Company CL has been an investors’ favorite, driven by its consistent earnings and sales beat trend. The company has been a prime beneficiary of the strong demand for oral care and pet nutrition products. Its focus on innovation, brand strength, stringent pricing actions, expansion of digital capabilities and accelerated revenue growth management plans has provided it with an edge compared with other market players.
Colgate has been on track with its efforts to improve product availability through enhanced distribution to newer markets and channels. However, the company is not immune to higher raw material and logistic costs worldwide, and unfavorable currency issues.
Shares of Colgate have gained 2.4% in the past three months compared with the industry’s growth of 0.5% and the Consumer Staples sector’s rise of 0.1%. However, the stock lagged the S&P 500’s rally of 9.2% in the same period.
The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s current financial-year sales and earnings suggests growth of 6.3% and 5.7%, respectively, from the year-ago reported numbers.
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What Makes CL a Buy Option?
Innovation and in-store implementation have been the guiding principles for Colgate’s growth strategy over the years. CL’s innovation strategy is focused on growing in adjacent categories and product segments. It is also focused on the premiumization of its Oral Care portfolio through major innovations. Backed by premium innovation, products, including CO. by Colgate, Colgate Elixir toothpaste and Colgate enzyme whitening toothpaste, have been performing well.
Its innovation efforts are highlighted by the continued expansion of the Naturals and Therapeutics divisions, and the Hello Products LLC buyout. The company also partnered with Philips to introduce electric toothbrushes in Latin America, where the use of electric toothbrushes is low. This long-term deal will bring together the world’s number one oral care brand and the number one manufacturer of sonic toothbrushes under a co-brand, namely Philips Colgate. This product line will come with a variety of electric toothbrushes at different prices.
Colgate’s revenue growth management initiatives led to double-digit pricing gains worldwide in the first quarter of 2023. This led to impressive organic sales growth in the quarter.
On an organic basis, Colgate’s sales advanced 10% in the first quarter, with improvements in all divisions and categories. This marked the 17th successive quarter of organic sales growth at or above its long-term target of 3-5% growth. While volumes remained soft, pricing gains of 12% aided organic sales. Bold pricing actions and accelerated revenue growth management plans were key drivers.
Expanding the availability of products through enhanced distribution to newer markets and channels is one of Colgate’s priorities to improve organic sales. The company is aggressively expanding into faster-growth channels, while extending the geographic footprint of its brands.
In 2019, Colgate expanded its portfolio by introducing pharmacy brands like elmex and meridol to newer markets. It remains impressed with the performance of professional skincare businesses — Elta MD and PCA Skin — in spas and dermatologists. The company expanded its premium skincare portfolio with the buyout of the Filorga skincare business. Colgate is witnessing strong market share gains in North America and China, its two largest markets, with increased share gains across all other regions.
Colgate’s Hill's business has been a major contributor to sales growth for the past few quarters. The segment reported sales growth of 21.5% in the first quarter, with organic sales growth of 14%. Results gained from an 11.5% increase in pricing, and volume growth of 12% on a reported basis and 2.5% on an organic volume basis, partly offset by a 2% adverse currency impact. Organic sales were aided by gains in the United States and Europe.
Strength in oral care and pet nutrition remains a key growth driver. The company’s newly launched Prescription Diet Derm Complete has been gaining market share and is likely to be rolled out internationally in the coming quarters. Colgate has also been focused on expanding the availability of its products through the e-commerce channel as more consumers are using online services for their essential needs.
Management raised its sales and profit forecast for 2023. Colgate- anticipates net sales growth of 3-6%. The current projection indicates gains from the acquisitions of pet food businesses, offset by a low-single-digit adverse currency impact.
The company anticipates full-year organic sales growth between 4% and 6%. CL foresees adjusted gross profit margin expansion and increased advertising investments. Management guided mid-single-digit growth in adjusted earnings per share.
Other Stocks to Consider
Some other top-ranked stocks from the broader Consumer Staples space are Clorox CLX, Coty Inc. COTY and Procter & Gamble PG.
Clorox has a trailing four-quarter earnings surprise of 25.5%, on average. The company has an expected long-term earnings growth rate of 12.5%. CLX currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Clorox’s current financial-year sales suggests growth of 2% from the year-ago reported number.
Coty currently sports a Zacks Rank of 1 and has an expected long-term earnings growth rate of 15.6%. COTY has a trailing four-quarter earnings surprise of 145%, on average.
The Zacks Consensus Estimate for COTY’s current financial-year sales suggests growth of 3.1% from the prior-year reported number.
Procter & Gamble currently has a Zacks Rank #2 and an expected long-term earnings growth rate of 6.1%. PG has a trailing four-quarter earnings surprise of 1.02%, on average.
The Zacks Consensus Estimate for Procter & Gamble’s current financial-year sales suggests growth of 1.5% from the year-ago reported number.
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