Consumer products company Colgate-Palmolive (NYSE:CL) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 2.4% year on year to $5.03 billion. Its non-GAAP profit of $0.91 per share was 2.9% above analysts’ consensus estimates.
Revenue: $5.03 billion vs analyst estimates of $5.01 billion (in line)
Adjusted EPS: $0.91 vs analyst estimates of $0.88 (2.9% beat)
Full year revenue guidance raised: 3-5% growth vs 2-5% previously
Full year EPS guidance raised: 10-11% growth vs 8-11% previously
EBITDA: $1.22 billion vs analyst estimates of $1.24 billion (1.8% miss)
Gross Margin (GAAP): 61.1%, up from 58.6% in the same quarter last year
Operating Margin: 21.2%, in line with the same quarter last year
EBITDA Margin: 24.1%, in line with the same quarter last year
Free Cash Flow Margin: 20.5%, similar to the same quarter last year
Organic Revenue rose 6.8% year on year (9% in the same quarter last year)
Sales Volumes rose 3.7% year on year (-0.5% in the same quarter last year)
Market Capitalization: $81.5 billion
Colgate-Palmolive Company (NYSE:CL) today reported results for third quarter 2024. Noel Wallace, Chairman, President and Chief Executive Officer, commented on the Base Business third quarter results, “We are very pleased to have delivered another quarter of strong top and bottom line results with earnings exceeding our expectations. Net sales increased 2.4% and organic sales grew 6.8% (on top of 8.8% organic sales growth in the year ago quarter) driven by a healthy balance of volume growth and higher pricing. Every operating division delivered positive volume growth for the second consecutive quarter as we focus on increasing household penetration to drive category growth and market shares.
Company Overview
Formed after the 1928 combination between toothpaste maker Colgate and soap maker Palmolive-Peet, Colgate-Palmolive (NYSE:CL) is a consumer products company that focuses on personal, household, and pet products.
Household Products
Household products stocks are generally stable investments, as many of the industry's products are essential for a comfortable and functional living space. Recently, there's been a growing emphasis on eco-friendly and sustainable offerings, reflecting the evolving consumer preferences for environmentally conscious options. These trends can be double-edged swords that benefit companies who innovate quickly to take advantage of them and hurt companies that don't invest enough to meet consumers where they want to be with regards to trends.
Sales Growth
Examining a company’s long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.
Colgate-Palmolive is one of the most widely recognized consumer staples companies. Its influence over consumers gives it negotiating leverage with distributors, enabling it to pick and choose where it sells its products (a luxury many don’t have). However, its scale is a double-edged sword because there are only a finite number of major retail partners, placing a ceiling on its growth.
As you can see below, Colgate-Palmolive’s sales grew at a tepid 5.1% compounded annual growth rate over the last three years, but to its credit, consumers bought more of its products.
Colgate-Palmolive Total Revenue
This quarter, Colgate-Palmolive grew its revenue by 2.4% year on year, and its $5.03 billion of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 2.9% over the next 12 months, a slight deceleration versus the last three years. This projection is underwhelming and indicates the market thinks its products will face some demand challenges. At least the company is tracking well in other measures of financial health.
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
To analyze whether Colgate-Palmolive generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.
Over the last two years, Colgate-Palmolive’s quarterly sales volumes have, on average, stayed about the same. This stability is normal as the quantity demanded for consumer staples products typically doesn’t see much volatility. The company’s flat volumes also indicate its average organic revenue growth of 8.5% was generated from price increases.
Colgate-Palmolive Year-On-Year Volume Growth
In Colgate-Palmolive’s Q3 2024, sales volumes jumped 3.7% year on year. This result was a well-appreciated turnaround from the 0.5% year-on-year decline it posted 12 months ago, showing the company is heading in the right direction.
Key Takeaways from Colgate-Palmolive’s Q3 Results
We were impressed by how significantly Colgate-Palmolive blew past analysts’ organic revenue growth expectations this quarter, leading to a slight revenue beat and an EPS beat. Additionally, the company slightly raised the midpoint of its full year revenue and EPS guidance. Overall, this quarter was a solid quarter. The stock remained flat at $100 immediately after reporting.
