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Colgate (CL) Q1 Earnings & Sales Beat Estimates, View Up

Colgate-Palmolive Company CL reported first-quarter 2023 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. While sales improved year over year, earnings per share declined from the year-ago period. Despite challenging macroeconomic conditions, Colgate-Palmolive registered growth in all divisions and all four categories. The company raised organic sales view for the full year.

Quarter in Detail

On a Base Business basis (non-GAAP basis), earnings came in at 73 cents a share, down 1% from the prior-year period. However, the bottom comfortably surpassed the Zacks Consensus Estimate and our estimate both pegged at 70 cents.

Net sales of $4,770 million increased 8.5% from the year-ago quarter and beat the Zacks Consensus Estimate of $4,617 million and our estimate of $4,502.2 million. On an organic basis, the company’s sales advanced 10%, with improvements in all divisions and categories.

Total volumes declined 2% on an organic basis, while pricing was up 12%. The unfavorable currency impact in the quarter was 3.5%.

Colgate-Palmolive Company Price, Consensus and EPS Surprise

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

Colgate-Palmolive Company price-consensus-eps-surprise-chart | Colgate-Palmolive Company Quote

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The gross profit of $2,712 million increased 5.4% year over year. However, the gross profit margin contracted 160 basis points (bps) to 56.9% on a both GAAP and an adjusted basis. This includes an adverse impact of 90 bps from private-label sales resulting from the previously disclosed acquisitions of pet food businesses.

Management also highlighted that the gross profit margin improved on a sequential basis in spite of continued pressure from raw and packaging material costs. The company expects an improvement in the metric due to continued strong pricing and the benefits of funding the growth and other productivity initiatives.

Selling, general & administrative (SG&A) expenses grew 7.1% year over year to $1,758 million. As a percentage of net sales, SG&A expenses contracted 40 bps year over year to 36.9%.

Colgate’s global market share in the manual toothbrushes category has reached 30.6% year to date. The company has continued with its leadership position in the global toothpaste market, with a market share of 40.2% year to date.

Segment Discussion

North America’s net sales (20% of total sales) rose 3.5% year over year. The segment gained from a 10.5% increase in pricing, offset by a 6.5% decline in volume and 0.5% currency headwinds. Organic sales growth in oral care and personal care was partly offset by organic sales declines in home care. Sales in home care were impacted by the earlier announced voluntary recall of certain Fabuloso multi-purpose cleaners. Year to date, Colgate’s share in the toothpaste and manual toothbrush markets is 34.3% and 42%, respectively, in the United States.

Latin America’s net sales (23% of total sales) advanced 12.5% year over year on 18% pricing gains. Sales growth was partly offset by a 3.5% decline in volume and a 2% negative currency impact. On an organic basis, sales were up 14.5%, led by growth in Mexico, Argentina, Brazil and Colombia.

Europe’s net sales (14% of the total sales) declined 0.5% year over year on a reported basis. The segment was affected by a 3.5% decrease in volume and a 5% negative currency impact, offset by an 8% pricing gain. Organic sales were up 4.5%, driven by Germany, Poland, the Netherlands, France and the United Kingdom, partly offset by organic sales declines in the Filorga business, principally related to the travel retail business and China.

The Asia Pacific segment’s net sales (15% of the total sales) increased 1.5% year over year, reflecting a 2% jump in volumes and a 6.5% rise in pricing, offset by a 7% impact of adverse currency. Organic sales improved 8.5%, driven by gains in the Greater China region, India, Australia and the Philippines.

Africa/Eurasia’s net sales (6% of the total sales) improved 8% year over year due to 21.5% growth in pricing, offset by an 8.5% unfavorable currency impact and a 5% decline in volume. Organic sales for the segment grew 16.5%, driven by growth in Turkiye and South Africa.

Hill’s Pet Nutrition’s net sales (22% of the total sales) improved 21.5% from the year-ago quarter on a reported basis and 14% on an organic basis. Results gained from an 11.5% increase in pricing, volume growth of 12% on a reported basis and 2.5% on an organic volume basis, partly offset by a 2% adverse currency impact. Organic sales were aided by gains in the United States and Europe.

Other Financial Details

Colgate-Palmolive ended the quarter with cash and cash equivalents of $867 million and total debt of $8,907 million. Net cash provided by operating activities was $735 million for the three-month period ended on Mar 31, 2023. Free cash flow before dividends was $572 million.

Outlook

Management raised its sales and profit forecast for 2023. Colgate-Palmolive now anticipates net sales growth of 3-6% compared with its prior estimate range of 2-5%. The current projection reflects gains from the acquisitions of pet food businesses, offset by a low-single-digit adverse currency impact. It now anticipates full-year organic sales growth between 4% and 6% compared with its earlier forecast of 3% to 5%.

The company still foresees adjusted gross profit margin expansion and increased advertising investment. Management guided mid-single-digit growth in adjusted earnings per share compared with its prior expectation of a low-to-mid-single-digit increase.

Shares of this Zacks Rank #2 (Buy) company have risen 6.9% in the past three months compared with the industry’s growth of 11%.

Other Solid Consumer Staple Picks

Some other top-ranked consumer staple stocks are Lamb Weston LW, Post Holdings POST and Conagra Brands CAG.

Lamb Weston, which operates as a frozen potato product company, currently sports a Zacks Rank #1 (Strong Buy). LW has a trailing four-quarter earnings surprise of 47.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Lamb Weston’s current fiscal-year sales and earnings suggests growth of 29.6% and 116.8%, respectively, from the corresponding year-ago reported figures. The expected EPS growth rate for three to five years is 42.7%.

Post Holdings, a consumer-packaged goods holding company, currently sports a Zacks Rank #1. POST has a trailing four-quarter earnings surprise of 34.8%, on average.

The Zacks Consensus Estimate for Post Holdings’ current fiscal-year sales and earnings suggests growth of 2.2% and 112.5%, respectively, from the corresponding year-ago reported figures.

Conagra Brands, which operates as a consumer-packaged goods food company, currently carries a Zacks Rank #2. CAG has a trailing four-quarter earnings surprise of 13.2%, on average.

The Zacks Consensus Estimate for Conagra Brands’ current fiscal-year sales and earnings suggests an increase of 7.1% and 16.5%, respectively, from the year-ago reported number. The expected EPS growth rate for three to five years is 6.4%.

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Colgate-Palmolive Company (CL) : Free Stock Analysis Report

Conagra Brands (CAG) : Free Stock Analysis Report

Post Holdings, Inc. (POST) : Free Stock Analysis Report

Lamb Weston (LW) : Free Stock Analysis Report

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