Colgate-Palmolive Company CL stock is doing well on the bourses courtesy of its robust strategic efforts. Shares of this renowned consumer goods company have gained 22% in a year, outperforming the Zacks Soap and Cleaning Materials industry’s 16.4% growth and the broader Consumer Staples sector’s 9.1% rise.
The company has been gaining from pricing and productivity initiatives for a while now. Its innovation strategy and shareholder-friendly moves also bode well.
Currently priced at $91.50, Colgate stock is trading at 16.3% to its 52-week high of $109.30. However, it is trading at a 21.7% premium to its 52-week low mark.
Analyzing Colgate’s Core Strengths
Colgate’s innovation strategy concentrates on growing in adjacent categories and product segments. The company is 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. Also, at-home whitening and professional whitening products bode well. Its Oral Care business has also been performing well.
Some other notable efforts include the continued expansion of the Naturals and Therapeutics divisions, as well as the Hello Products LLC buyout. CL has been seeing market share growth for its Hill’s Science Diet and Hill’s Prescription Diet across the specialty channels, driven by its science-led innovation and improved brand support. On a category basis, volume growth was led by oral care and pet nutrition in the third quarter of 2024, with the Hill’s business delivering 3.6% volume growth.
CL's Price Performance
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The company has re-vamped its innovation model, leveraged global strength across price tiers and invested in marketing and capabilities, all of which contribute to solid brand health and household penetration. Colgate has been gaining from strong pricing and the benefits of funding-the-growth program and other productivity initiatives. In the most recent quarter, pricing improved 3.1% year over year, backed by positive pricing across all divisions, except for North America.
Such initiatives have been bolstering Colgate’s margins for a while. During the third quarter, adjusted gross margin expanded 270 basis points (bps), while adjusted operating profit margin increased 50 bps year over year on higher gross margin. For 2024, management forecasts gross profit margin expansion on an adjusted basis, driven by continued pricing gains, benefits from revenue-growth management initiatives and strength in the funding-the-growth program. CL expects the Base Business’ earnings per share (EPS) to increase in the band of 10-11% year over year.
Bumps in CL’s Growth Trajectory
Colgate has been witnessing inflationary pressures and a challenging macro-economic environment for quite some time now. Raw material inflation and continued rise in packaging also act as deterrents to the company’s profitability. Higher adjusted selling, general and administrative and advertising expenses are concerning.
Management expects continued advertising investment for the rest of the year, primarily focused on brand building and scaling capabilities. It anticipates higher advertising costs for 2024, both on a dollar basis and as a percentage of sales.
Unfavorable foreign currency fluctuations are also hurting the company’s performance. In the reported quarter, currency negatively impacted sales growth by 4.4%. Currency translations were mainly hurt by Argentina and several countries in the Africa/Eurasia division. Sales view for 2024 includes a mid-single-digit negative impact of currency.
Final Words on Colgate
CL’s pricing and productivity initiatives are likely to address cost issues ahead. Colgate also remains committed to rewarding shareholders with share buybacks and dividend payouts. On an annualized basis, the dividend rate is $2.00 per share, up from $1.92 paid previously. Markedly, the company has paid uninterrupted dividends since 1895.
Analysts seem quite optimistic about the company. The Zacks Consensus Estimate for CL’s 2024 EPS has inched up 0.6% in the past 30 days to $3.59. The consensus mark for sales and EPS indicates 3.9% and 11.2% year-over-year increase, respectively. Colgate currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
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The Zacks Consensus Estimate for Freshpet’s current financial-year sales and EPS indicates growth of 27.3% and 224.3%, respectively, from the prior-year levels.
Vital Farms VITL, which provides pasture-raised products, currently carries a Zacks Rank #2 (Buy). The consensus estimate for Vital Farms’ current financial-year sales and EPS indicates growth of 27.1% and 88.1%, respectively, from the prior-year levels.
VITL has a trailing four-quarter average earnings surprise of 48.5%.
McCormick & Company MKC, manufacturer and distributor of spices, seasonings, specialty foods and flavors, currently carries a Zacks Rank of 2. MKC has a trailing four-quarter average earnings surprise of 13.8%.
The Zacks Consensus Estimate for MKC’s current financial-year sales and EPS indicates growth of 0.6% and 8.2%, respectively, from the year-ago figures.
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