), the world leader in oral care, is expected to release Q1 2011
earnings on April 28. Here we highlight two key trends that
investors should keep an eye on - how margins have trended over the
past quarter and the outlook for market share. Colgate competes
with other leading personal care companies such as Procter &
) and Kimberly-Clark (
). We value Colgate-Palmolive stock with a
$88.80 price estimate
, a roughly 10% premium to market price.
Apart from oral care products, Colgate-Palmolive also makes
personal care and home care products like soaps, shampoos, and
Margins in Focus
Colgate-Palmolive closed 2010 with 3% volume growth at flat
pricing. The company stood still on pricing while other leading
players such as P&G and Unilever withdrew promotions and
actually raised prices to combat rising input (commodity)
While a volume-driven growth strategy might put Colgate at an
advantage in the lower-income but high-growth emerging markets, we
fear that persistent inflation could erode profit margins. We
haven't seen price increases in the past quarter, so much rests on
maintaining operating expenses to sustain EBITDA margins.
You can drag the trend line in the interactive chart below to
see the impact of various EBITDA margin scenarios on
Colgate-Palmolive's stock value.
A Look at Market Share
Should Colgate-Palmolive choose to maintain its volume-driven
growth strategy, it must realize significant market share gains to
offset lower profit margins. It is important to note that a single
quarter is too short to comment on the outcome of this strategy,
and investors should look at the trend emerging over the past few
quarters to gain a more complete picture.
What Else Should be on the Radar?
Restructuring costs and integration expenses
: On March 23, Colgate-Palmolive agreed to buy Unilever's Sanex
brand of personal care products for roughly $954 million and sell
its laundry detergent business in Colombia to Unilever for $215
million. While the deal promises to strengthen Colgate's personal
care business in Europe, we're keeping a watch on the
merger-related expenses and the post-merger integration costs yet
to be incurred.
See our complete analysis of Colgate-Palmolive's