It has been about a month since the last earnings report for Colgate-Palmolive (CL). Shares have added about 3.3% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Colgate-Palmolive due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Colgate’s Q2 Earnings & Sales Beat Estimates
Colgate has reported second-quarter 2020 results, wherein earnings and sales beat the Zacks Consensus Estimate and have improved year over year. In the reported quarter, gains from strong volume growth and robust pricing were offset by unfavorable foreign currency. Citing continued uncertainty regarding the coronavirus pandemic, the company withheld its view for 2020.
However, it continues to expect a mid-single-digit negative impact related to foreign exchange on net sales for 2020, based on current spot rates.
Adjusted earnings of 74 cents per share rose 3% from the prior-year quarter and surpassed the Zacks Consensus Estimate of 71 cents. On a GAAP basis too, earnings were 74 cents per share, reflecting growth of 9% from 68 cents earned in the year-ago period.
Total net sales of $3,897 million improved 1% from the year-ago period and beat the Zacks Consensus Estimate of $3,800 million. On an organic basis, the company’s sales advanced 5.5%. Organic sales were aided by improved volume and higher pricing. Unit volume increased 3.5% and 2% on an organic basis. Further, pricing was up 3.5%. Growth was mainly led by strength in North America and Hill’s segments. However, results were partly hurt by a 6% negative impact from foreign currency.
During the quarter, the company witnessed strong demand for some categories like liquid hand soap, dish liquid, bar soap and cleaners across almost all geographies. However, it witnessed the impacts of consumers’ lowering their pantry inventories for other categories, particularly in Europe.
Adjusted gross profit margin of 60.8% increased 120 basis points (bps) from the prior-year quarter. In dollar terms, adjusted gross profit rose 2.6% to $2,369 million.
Colgate’s market share of manual toothbrushes reached 31% year to date. Further, the company continued with its leadership position in the global toothpaste market, with market share at 40%.
North America’s net sales (24% of total sales) improved 12%, reflecting a 13% rise in unit volume, offset by a 0.5% decline in pricing and a 0.5% negative currency impact. On an organic basis, sales grew 11% with volume up 11.5%, driven by growth in the United States and Canada.
Latin America’s net sales (21% of total sales) dropped 13.5% year over year as 9% gains in pricing were offset by a 4.5% decline in unit volume and an 18% negative currency impact. On an organic basis, sales were up 4.5%, led by growth in Argentina, Brazil, the Caribbean region and Colombia, partially negated by a decline in Mexico. Organic volume also decline 4.5% in the quarter.
Europe’s net sales (16% of total sales) increased 5% year over year on a 7.5% rise in unit volume, somewhat offset by flat pricing and 2.5% adverse impact of unfavorable currency exchange. However, organic sales in Europe were down 1.5%, driven by a 1.5% decline in organic volume as well as declines in the U.K., Germany and Spain. This was slightly offset by organic sales growth in Switzerland and Belgium.
The Asia Pacific segment’s net sales (16% of total sales) declined 3%, attributable to a 3% fall in unit volume and a 3.5% impact of unfavorable currency rates, offset by 3.5% pricing gains. On an organic basis, sales for the Asia Pacific were up 0.5%, mainly driven by growth in Greater China and Australia, partly compensated by declines in Thailand and India.
Africa/Eurasia’s net sales (6% of total sales) dropped 6% year over year, owing to a 10.5% adverse impact from foreign exchange, which more than offset the 0.5% increase in unit volume and 4% pricing gains. Organic sales for Africa/Eurasia improved 2.5%, driven by gains in Turkey, the Saudi Arabia/Gulf States region and South Africa. Organic volume in the region declined 1.5%.
Hill’s Pet Nutrition’s net sales (17% of total sales) grew 9.5% from the year-ago quarter. Results gained from a 7.5% increase in unit volume and a 4% rise in pricing, offset by a 2% negative impact of currency. On an organic basis, sales were up 11.5%, aided by gains in the United States and Europe.
Other Financial Details
Colgate ended second-quarter 2020 with cash and cash equivalents of $997 million, and total debt of $7,392 million. Net cash provided by operating activities amounted to $1,794 million as of Jun 30, 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
At this time, Colgate-Palmolive has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Colgate-Palmolive has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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