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Colgate's (CL) Q3 Earnings In Line, Sales Miss Estimates

Colgate-Palmolive CompanyCL posted adjusted earnings of 72 cents per share in third-quarter 2018, down 1% from the prior-year quarter number. Notably, the figure came in line with the Zacks Consensus Estimate. Including one-time items, earnings came in at 60 cents per share compared with 68 cents reported in the year-ago period.

Total sales of $3,845 million dipped 3% from the year-ago period and fell short of the Zacks Consensus Estimate of $3,877 million. This underperformance can be attributed to unfavorable currency to the tune of 4% and flat global unit volume, somewhat offset by rise in pricing of 1%. During the reported quarter, Colgate's acquired professional skin care business contributed 1.5% to sales and unit-volume growth. On an organic basis, the company's sales dropped 0.5%.

Quarterly results were hurt by a challenging backdrop with soft category growth rates across the company's various markets. Also, foreign currency acted as a headwind in the quarter. Top-line growth was also marred by trade inventory reductions in China and volatility in Brazil. Although pricing environment was difficult due to competitive and retail dynamics, the company witnessed favorable pricing in the third quarter, somewhat offset by increased commodity and logistics expenses.

In the past three months, this Zacks Rank #3 (Hold) stock has lost 3.7%, against the industry 's 4.2% growth.

Deeper Insight

Adjusted gross profit margin of 59.2% contracted 120 basis points (bps) from the prior-year quarter figure, due to increased raw and packaging material expenses. However, this was partly offset by higher pricing and gains from cost savings under the company's funding-the-growth program.

In the reported quarter, adjusted operating profit of $899 million fell 10%, while the adjusted operating margin contracted 190 bps to 23.4%. The decline in operating margin resulted from a lower gross margin coupled with a rise of 50 bps in adjusted selling, general & administrative expenses as a percentage of sales.

Year to date, Colgate's market share of manual toothbrushes has reached 32.2%. Further, the company continued with its leadership in the global toothpaste market with 41.9% market share year to date.

Colgate-Palmolive Company Price, Consensus and EPS Surprise

Colgate-Palmolive Company Price, Consensus and EPS Surprise | Colgate-Palmolive Company Quote

Segment Discussion

North America net sales (22% of total sales) improved 8%, reflecting a 7.5% rise in unit volumes, flat currency impacts and a 0.5% increase in pricing. On an organic basis, sales increased 2%, while unit volume grew 1.5%.

Latin America net sales (22% of total sales) slipped 13% year over year, due to a 6% fall in unit volume, a 9.5% unfavorable currency exchange, offset by a 2.5% increase in pricing. During the quarter, soft volumes in Brazil, Central America and Argentina were negated by volume growth in Greater Caribbean and Mexico. On an organic basis, sales decreased 3.5%.

Europe net sales (17% of total sales) dipped 0.5% year over year, due to a 1.5% fall in pricing and 1% unfavorable currency exchange, somewhat mitigated by a 2% increase in unit volume. Unit volumes gained from strength in the United Kingdom, Spain and Greece. Further, organic sales in Europe inched up 0.5%.

Asia Pacific net sales (18% of total sales) dropped 7.5%, attributable to a 4% fall in unit volume, a 3.5% unfavorable currency exchange and flat pricing. Lower volumes in Greater China was somewhat compensated with higher volumes in India. On an organic basis, sales for the Asia-Pacific fell 4%.

Africa/Eurasia net sales (6% of total sales) dropped 6% year over year due to an 8.5% unfavorable currency exchange impact and a 0.5% lower unit volume. These were offset by a 3% rise in pricing. In Russia and Saudi Arabia, decline in volume was partly negated by volume growth in the Gulf States and Israel. Organic sales for Africa/Eurasia rose 2.5%.

Hill's Pet Nutrition net sales (15% of total sales) were up 1.5% from the year-ago quarter number. Results gained from a 1% rise in unit volume and a 2% increase in pricing, offset by a 1.5% negative impact from currency. Volume growth in the United States, South Africa and Australia was offset by fall in Western Europe. On an organic basis, sales rose 3%.

Other Financial Details

Colgate ended the quarter with cash and cash equivalents of $841 million and total debt of $6,604 million. Net cash provided by operating activities was $2,194 million as of Sep 30, 2018.

Outlook

Looking into 2018, Colgate anticipates higher advertising investment in relation to product innovations, core businesses and consumption-building initiatives. Also, management expects the backdrop to remain challenging due to uncertain global markets and slowing category growth worldwide. However, the company remains optimistic about the brand building and productivity maximization initiatives.

Depending on the existing spot rates, Colgate expects net sales to decline low-single digits for the fourth quarter due to foreign exchange headwinds. However, it projects organic sales to increase low-single-digit for the same period.

Further, the company anticipates lower gross margin for 2018, both on a GAAP and adjusted basis.

Nevertheless, the company continues to expect robust operating cash flow, advertising investment along with 3-4% improvement in earnings per share over 2017, on an adjusted basis. Also, GAAP earnings per share are envisioned to increase in double digits.

Better-Ranked Stocks in the Consumer Staples Sector

Archer Daniels Midland Company ADM pulled off an average positive earnings surprise of 18.6% in the trailing four quarters. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

The Chefs' Warehouse, Inc. CHEF , also a Zacks Rank #1 stock, has an impressive long-term earnings growth rate of 19%.

Lamb Weston Holdings, Inc. LW has a long-term earnings growth rate of 11% and a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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