We are retaining our long-term Neutral recommendation for
the global consumer goods manufacturer and distributor
We remain encouraged by the company's robust quarterly results
as well as its leading position in the industry. However, rigorous
competition and exposure to foreign currency fluctuations keep us
on the sidelines.
Colgate-Palmolive's second-quarter 2012 adjusted earnings of
$1.33 per share came in line with the Zacks Consensus Estimate and
increased nearly 6% from the prior-year quarter on the back of
Global net sales surged nearly 2% from the prior-year quarter,
benefiting from a 3.5% upside in pricing and a 5.5% rise in global
unit volume, partially offset by a 6.5% negative impact from
foreign currency translations.
Looking ahead, Colgate-Palmolive expects to register
double-digit earnings per share growth for fiscal 2012, excluding
the impact of foreign currency translation and gross margin
expansion in the range of 75 125 basis points.
Of late, management has been focusing on innovations for
developing new products regionally to combat rising material costs
and promotional investments, which will boost its top line. Also,
the company's strategic acquisition and divestment activities will
provide a cushion to its bottom line.
A world leader in oral care, the company also commands a
market-leading position in several personal care product
categories. Moreover, a strong portfolio of globally recognized
brands, including Colgate, Palmolive, Mennen, Softsoap, Irish
Spring, Protex, Sorriso, Kolynos, Elmex, Ajax and Axion provide a
competitive advantage to the company, further strengthening its
dominant position in the market.
However, the company operates in a highly competitive market
with new challenges every now and then. The resurgence of archrival
Procter & Gamble Co
) as well as the intensified global competitive conditions is
currently posing challenges for the company. Today, Colgate is
facing intense competition in various countries including China,
Russia, India, Hong Kong, Brazil and Mexico.
Further, the company's international exposure makes it prone to
currency fluctuations, which affect the products pricing and
ultimately the company's profit margins and consumer demand.
The company also strives to gain significant market share as the
competitive dynamics in the household products industry have
radically shifted from the earlier emphasis on cost savings and
manufacturing efficiencies to gaining market share. This, in turn,
has increased the company's costs due to the increasing marketing
and promotional expenditures, which weighs on the company's bottom
Summing up, we believe Colgate is well positioned in the current
competitive market. The company's outlook and growth strategies
suggest that it will successfully boost its top and bottom lines
going forward. However, maintaining some caution due to the
competitive market and unforeseen currency effects, the company
retains a short term Zacks #3 Rank (Hold).
COLGATE PALMOLI (CL): Free Stock Analysis
PROCTER & GAMBL (PG): Free Stock Analysis
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