We are maintaining our long-term Neutral recommendation on
) with a Zacks #3 Rank, implying a short-term Hold rating with a
target price of $106.00 per share.
Colgate-Palmolive is the industry leader in oral care and
commands market-leading positions in several personal care product
categories. Furthermore, a strong portfolio of globally recognized
brands provides a competitive advantage to the company and
strengthens its dominant position in the market.
Colgate-Palmolive recently posted a solid first-quarter 2012
with earnings per share and global net sales rising nearly 7% and
5%, respectively. The growth was primarily attributable to a 3.5%
surge in pricing and global unit volume, partially offset by a 2%
negative impact from foreign currency translations along with
increased material and packaging costs.
The company now expects 4% - 7% growth in global unit volume,
and gross margin expansion in the range of 75 to 125 basis points
in fiscal 2012.
We believe the company's strategy of focusing on innovations for
developing new products regionally will facilitate it in enhancing
its customer base while increasing market share.
Moreover, Colgate-Palmolive is focusing on acquiring businesses,
which have the potential to generate higher top-line growth and
margin. In line with this strategy, the company recently acquired
the Sanex business. The company also divested its laundry detergent
brands in Colombia. Colgate-Palmolive believes that these
transactions will contribute 1% to earnings growth in fiscal
Further, Colgate-Palmolive recently sold $500 million worth of
10-year medium-term notes maturing in May, 2022 at a coupon rate of
2.30%, which is believed to be the lowest 10-year coupon rate. The
company will use the funds to retire its old commercial paper. We
believe the transaction will enhance the company's financial
flexibility while retaining focus on future growth prospects.
However, the competitive dynamics in the household products
industry have radically changed from the earlier emphasis on cost
savings and manufacturing efficiencies to gaining market share. As
a result, costs have increased with the rise in marketing and
promotional expenditures, which we believe may weigh on its
Moreover, due to its exposure to international markets,
Colgate-Palmolive remains prone to currency fluctuation. The
weakening of foreign currencies against the U.S. dollar may require
the company to either raise prices or contract profit margins in
locations outside the U.S. An increase in product price may have a
direct impact on consumer demand.
Above all, Colgate-Palmolive operates in an intensely
competitive environment. The resurgence of archrival
Procter & Gamble Company
) has signaled new challenges. Global competitive conditions have
also intensified, and Colgate-Palmolive is facing strong
competition in China, Russia, India, Hong Kong, Brazil and
COLGATE PALMOLI (CL): Free Stock Analysis
PROCTER & GAMBL (PG): Free Stock Analysis
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