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Colgate (CL) Stock Rises on In-Line Q1 Earnings, Sales Beat

Colgate-Palmolive Company CL has reported first-quarter 2021 results, wherein earnings were in line with the Zacks Consensus Estimate, while sales beat the same. Moreover, both top and bottom lines improved year over year. The company’s strong results can be attributed to higher investments in premium innovation, digital transformation and advertising.

On a Base Business basis (adjusted non-GAAP), earnings of 80 cents per share rose 7% from the prior-year quarter and were in line with the Zacks Consensus Estimate. On a GAAP basis, earnings declined 4% to 80 cents per share in the quarter under review. Earnings and operating profit benefited from positive pricing in each segment.

Net sales of $4,344 million improved 6% from the year-ago period and beat the Zacks Consensus Estimate of $4,266 million. On an organic basis, the company’s sales advanced 5%. Organic sales were aided by improved pricing, innovation and digital investments despite tough year-over-year comparisons due to pantry loading in the prior-year quarter, owing to the onset of the pandemic. Unit volumes increased 0.5% on both reported and organic basis, while pricing was up 4.5%.

ColgatePalmolive Company Price, Consensus and EPS Surprise

 

ColgatePalmolive Company price-consensus-eps-surprise-chart | ColgatePalmolive Company Quote

Organic sales growth was mainly led by strength in the Africa/Eurasia, the Asia Pacific and Latin America segments. However, results were partly hurt by a 1% negative impact of foreign currency.

Adjusted gross profit margin of 60.7% increased 40 basis points (bps) from the prior-year quarter. In dollar terms, adjusted gross profit rose 6.8% to $2,637 million.

Selling, general & administrative (SG&A) expenses increased 9% year over year to $1,605 million. As a percentage of sales, SG&A expenses escalated 100 bps to 36.95%. Adjusted operating income of $1,004 million in the first quarter advanced 5% year over year. Meanwhile, adjusted operating margin contracted 30 bps to 23.1% due to higher SG&A expenses, which more than offset improved gross margin.

Colgate’s market share of manual toothbrushes has reached 30.6% year to date. Further, the company continued with its leadership position in the global toothpaste market, with a market share of 39.2%.

Backed by the strong results, shares of the company rose 2.1% in the pre-market trading session. Moreover, shares of this Zacks Rank #4 (Sell) company have gained 1.6% in the past three months against the industry’s decline of 8.6%.

 

 

Segmental Discussion

North America’s net sales (21% of total sales) declined 0.5%, reflecting a 6.5% fall in unit volumes, offset by 5.5% pricing gains and a 0.5% favorable currency. On an organic basis, sales dipped 1.5%, with organic volumes down 7%, mainly driven by a decline in the United States, which more than offset growth in Canada. Year to date, the company’s share in the toothpaste market is at 34.1% and it is at 40.1% in the manual toothbrush market in the United States.

Latin America’s net sales (21% of total sales) rose 2% year over year, as 8.5% gains in pricing and 1% volume growth more than offset the 7.5% negative currency impact. On an organic basis, sales were up 9.5%, led by growth in Brazil, Argentina, Mexico and Colombia. Organic volumes also grew 1% in the quarter.

Europe’s net sales (16% of total sales) increased 6% year over year on a 1.5% rise in pricing and an 8% positive currency impact, offset by a 3.5% decline in unit volume. However, organic sales in Europe dropped 2%, driven by a 3.5% fall in organic volumes as well as declines in the U.K. and Germany. This was partly negated by organic sales growth in the Nordic region and Switzerland.

The Asia Pacific segment’s net sales (18% of total sales) improved 16.5% on a reported basis and 11% on an organic basis. This growth is attributable to a 10.5% rise in unit volumes (both reported and organic), 0.5% pricing gains and a 5.5% favorable currency. Sales growth in the Asia Pacific was mainly led by the Greater China region, India, the Philippines and Thailand.

Africa/Eurasia’s net sales (6% of total sales) increased 8.5% year over year due to a 5% rise in unit volumes (both reported and organic) and an 8% increase in pricing, offset by a 4.5% adverse impact of foreign exchange. Organic sales for Africa/Eurasia improved 13%, driven by gains in Turkey, Nigeria, South Africa and Russia.

Hill’s Pet Nutrition’s net sales (18% of total sales) grew 9.5% from the year-ago quarter on a reported basis and 7% on an organic basis. Results gained from a 3% increase in unit volumes (both reported and organic), 4% pricing growth and a 2.5% positive currency impact. Sales were aided by gains in the United States, Europe and Canada.

Other Financial Details

Colgate ended first-quarter 2021 with cash and cash equivalents of $995 million, and total debt of $7,833 million. Net cash provided by operating activities amounted to $598 million as of Mar 31, 2021.

Outlook

The company anticipates volatility in consumer demand and currencies along with elevated raw material prices and logistics costs in the quarters ahead. However, it remains optimistic about its investments and growth strategies to steer through the challenges. Notably, the company is on track with the plans to increase advertising for its brands. Also, it has a robust innovation pipeline for the balance of the year across all product categories. Based on these, it reiterated its 2021 view.

The company predicts net sales growth of 4-7%, with a low-single-digit favorable currency impact. Organic sales are likely to rise 3-5%, which is within its long-term target range. Further, it expects gross margin expansion on both GAAP and adjusted basis, with an increase in advertising investments.

Additionally, the company anticipates GAAP earnings per share growth of low to mid-single digits. Meanwhile, adjusted earnings per share are projected to grow in mid to high-single digits.

Stocks to Consider

Sanderson Farms, Inc. SAFM has a long-term earnings growth rate of 4.3%. The stock presently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Fomento Economico Mexicano S.A.B. de C.V. FMX has a long-term earnings growth rate of 9.3%. It currently carries a Zacks Rank #2 (Buy).

Pilgrim’s Pride Corporation PPC has a long-term earnings growth rate of 24.2% and a Zacks Rank #2 at present.

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ColgatePalmolive Company (CL): Free Stock Analysis Report
 
Fomento Economico Mexicano S.A.B. de C.V. (FMX): Free Stock Analysis Report
 
Sanderson Farms, Inc. (SAFM): Free Stock Analysis Report
 
Pilgrims Pride Corporation (PPC): Free Stock Analysis Report
 
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