Investors of the leading consumer products company, Colgate-Palmolive CompanyCL will agree to the fact that this stock has never let them down. The truth of this statement is evident from the solid growth in the stock price, impressive earnings trend, inspiring strategic initiatives and robust market share. Further, the company's long-term earnings growth rate of 9.2% and a VGM Style Score of "B", justify its growth potential.
So, let's get a better understanding of how these traits are working for this Zacks Rank #3 (Hold) stock.
This New York City-based global consumer products manufacturer and distributor has outperformed the broader sector in the last six months. Evidently, shares of Colgate advanced 14.7%, compared with the Zacks categorized Consumer Staples sector's 9% upside. This is mainly attributable to its robust show even amid a tough retail landscape. This, in itself, speaks volumes about the company's ongoing prospects.
Robust Earnings Trend
Colgate has been infamous among investors with its meet or beat earnings track record. Notably, the company has posted in-line earnings in four of the last seven quarters while it surpassed estimates in the remaining three. Thus, the company's average positive earnings surprise is pegged at 0.7% for the trailing four quarters.
Colgate-Palmolive Company Price, Consensus and EPS Surprise
After posting in-line earnings for two straight quarters, Colgate delivered a positive earnings surprise in first-quarter 2017. Also, the bottom line grew year over year, aided by margin expansion and lower tax rate. The company has been witnessing enhanced margins for a while now, driven by the cost-savings from the funding-the-growth and 2012 Restructuring Program. Further, better pricing and emerging market growth boosted performance amid a tough macro environment.
Solid Market Share Growth
Colgate-Palmolive commands a market-leading position in the oral care and personal care product categories. Innovation and in-store implementation have been the guiding principles for Colgate-Palmolive's growth strategy over the years, enabling it to capture market share across all regions and categories. In this regard, the gap between Colgate-Palmolive and its closest rival increased from 70 basis points (bps) to 7 full points in the past 5 years. Moreover, on a year-to-date basis, the company's global market share in the manual toothbrush and toothpaste businesses reached 32.7% and 43.8%, respectively, as of Mar 31, 2017.
Moreover, the company expects to further grow market share in 2017 through a series of innovative product launches lined up for the year. We believe that management's continued focus on product innovations, globally recognized brands and broad international presence in both developed and emerging markets assists the company to take advantage of growth opportunities, consequently enhancing profitability.
The company continues to progress well with savings programs, as both, its Global Growth and Efficiency Program or 2012 Restructuring Program along with its Funding the Growth undertakings are delivering impressive results. These initiatives contributed significantly to margin expansion in first-quarter 2017. The four-year Global Growth and Efficiency Program focuses on reducing structural costs in order to augment gross and operating profit, standardizing processes to improve the decision-making procedure and enhance its market share position worldwide. Meanwhile, by the "Funding the Growth" initiative, the company aims at opening new environmentally sustainable distribution centers to offer better service to its customers, while also reducing fuel and transportation costs. These programs are expected to contribute significantly toward the improvement of gross and operating margins over the long term.
Further, the company has always followed a disciplined capital allocation strategy that focuses on making investments to develop business, while using the excess cash to enhance shareholder returns through dividend payouts and share buybacks, owing to its strong cash generation ability.
While all is well with this leading manufacturer of oral care and personal care products, its sales trend remains soft largely due to unfavorable currency movements. The company lagged sales estimates in 15 out of the past 16 quarters. Moreover, adverse currency and a tough global environment are likely to impact 2017 results. Nonetheless, organic sales are anticipated to improve sequentially throughout the year.
In a nut shell, we believe that Colgate's growth drivers far outweigh the obstacles and will help the company sustain its impressive momentum.
However, investors interested in the space can count on Unilever Plc UL , Church & Dwight Company Inc. CHD and Reckitt Benckiser Group PLC RBGLY , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Unilever, with long-term EPS growth rate of 12%, has increased nearly 11% in the last three months.
Church & Dwight has to its credit a spectacular earnings history as the company delivered an average positive earnings surprise of 6.3% in the past four quarters. Moreover, it has a long-term EPS growth rate of 9.2%.
Reckitt Benckiser, with long-term EPS growth rate of 15.5%, has grown 13.1% in the last three months.
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