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Colgate-Palmolive Company CL has reported third-quarter 2024 results, wherein the top and bottom lines beat the Zacks Consensus Estimate and improved year over year. Results have benefited from strong top-line growth, solid organic volume performance, and gross and operating profit margin expansions. The company raised the low end of its 2024 outlook for net sales, organic sales and adjusted EPS.
On a Base Business basis (non-GAAP basis), earnings were 91 cents per share, up 6% from the prior-year period. The bottom line surpassed the Zacks Consensus Estimate of 88 cents.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Net sales of $5.03 billion increased 2.4% from the year-ago quarter and beat the Zacks Consensus Estimate of $5.01 billion. On an organic basis, the company’s sales advanced 6.8%. The sales momentum was driven by organic sales growth in five of the six divisions.
Shares of this Zacks Rank #3 (Hold) company have rallied 25.1% year to date compared with the industry’s growth of 19.4%.
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A Detailed Picture of CL's Q3 Results
Colgate’s organic sales growth reflected augmented volume and higher pricing. The company reported volume increases in every operating division for the second straight quarter, aided by higher brand penetration to drive category and market share gains. The rise in organic sales was led by double-digit growth in oral care for the fourth consecutive quarter.
Total volumes rose 3.7% year over year on an organic and reported basis, attributed to growth across all divisions. On a category basis, volume growth was led by oral care and pet nutrition in the third quarter, with the Hill’s business delivering 3.6% volume growth despite a low-single-digit negative impact of lower private label volumes.
Meanwhile, pricing improved 3.1% year over year, backed by positive pricing across all divisions, except for North America. Excluding Argentina, pricing improved in the low-single digits in the quarter. However, currency negatively impacted sales growth by 4.4% in the quarter. Currency translations were mainly hurt by Argentina and several countries in the Africa/Eurasia division. Excluding Argentina, the company experienced low-single-digit adverse currency effects.
We estimated organic sales growth of 6.5% for the third quarter, with a 3.1% rise in pricing and a 3.4% increase in volume.
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
Gross profit of $3.07 billion improved 6.8% year over year. The gross profit margin expanded 260 basis points (bps) to 61.1% on a GAAP basis. Adjusted gross profit improved 7.1% year over year to $3.08 billion, with the adjusted gross margin expanding 270 bps to 61.3%. We expected the adjusted gross margin to expand 240 bps to 61% for the third quarter.
Adjusted selling, general and administrative (SG&A) expenses grew 8.5% year over year to $1.98 billion. As a percentage of net sales, adjusted SG&A expenses increased 220 bps year over year to 39.3%. We predicted adjusted SG&A expenses, as a percentage of revenues, to expand 160 bps to 38.7%.
The company’s adjusted operating profit of $1.08 billion advanced 5% year over year. The adjusted operating profit margin expanded 50 bps year over year to 21.5%, owing to continued strength in the gross margin. We expected the adjusted operating margin to expand 60 bps to 21.6% for the third quarter.
Colgate’s global market share in the manual toothbrushes category has reached 32.3% year to date. The company has maintained its leadership position in the global toothpaste market, with a market share of 41.6% year to date.
A Peek Into CL's Segmental Discussion
North America’s net sales (20% of total sales) dipped 2.1% year over year on a reported basis and 1.9% on an organic basis. The sales decline was led by a 3.2% decrease in pricing, offset by a 1.2% increase in volume. The slip in pricing was led by a continued shift toward mid-tier products and channels, along with increased couponing and higher redemption rates across the CPG industry. This was slightly offset by volume growth in oral care and liquid cleaners.
Latin America’s net sales (23% of the total sales) declined 3.2% year over year as 10.9% pricing gains and a 3.3% increase in volume were more than offset by a 17.4% unfavorable currency impact. On an organic basis, sales rose 14.2%, led by volume growth for the sixth consecutive quarter. Pricing benefited from gains in Argentina and Brazil.
Europe’s net sales (15% of the total sales) increased 8% year over year on a reported basis and 6.3% on an organic basis. Sales growth was driven by a 4.1% rise in volume, a 2.2% pricing gain and a 1.6% favorable currency impact. The volume rise was fueled by increases across all hubs and in all three categories — oral care, personal care and home care. Pricing continued to be positive, owing to the consistent implementation of its revenue growth management strategies.
The Asia Pacific segment’s net sales (14% of the total sales) improved 6.3% year over year, reflecting a 6.5% increase in volume and a 0.2% favorable currency impact, offset by a 0.3% decline in pricing. Organic sales advanced 6.1% due to volume rise in India, Greater China and South Pacific, along with high-single-digit growth in toothpaste.
Africa/Eurasia’s net sales (6% of the total sales) rose 4.8% year over year due to a 6.9% increase in volume and 3.9% growth in pricing, offset by a 6% unfavorable currency impact. Organic sales for the segment advanced 10.8%, driven by strong pricing and volume gains. Volume improvement mainly stemmed from growth across all three categories, including high-single-digit growth in oral care.
Hill’s Pet Nutrition’s net sales (22% of the total sales) improved 6.3% from the year-ago quarter on a reported basis and 6.5% on an organic basis. Results gained from a 3.6% increase in volume and a 2.8% rise in pricing, offset by a 0.1% negative currency impact. The segment’s volume was led by gains in the United States despite a low-single-digit negative impact of lower private label volume.
CL's Other Financial Information
Colgate ended third-quarter 2024 with cash and cash equivalents of $1.2 billion, and a total debt of $8.4 billion. Net cash provided by operating activities was $2.8 billion for the first nine months of 2024. The free cash flow before dividends was $2.46 billion.
Colgate's 2024 Outlook
Management has raised the low end of its net sales, organic sales and Base Business EPS forecasts for 2024. Colgate anticipates net sales growth of 3-5% compared with the 2-5% rise mentioned earlier. This indicates a higher organic sales view, offset by the negative impacts of currency translations.
The company expects organic sales growth of 7-8% for 2024 versus the 6-8% rise mentioned earlier. It retained the guidance of a mid-single-digit negative impact of currency.
CL foresees gross profit margin expansion on both GAAP and adjusted basis, driven by continued pricing gains, benefits from revenue growth management initiatives and strength in the funding-the-growth program. Colgate anticipates higher advertising costs for 2024, both on a dollar basis and as a percentage of sales.
With recent interest rate reductions by the Fed and lower debt levels, the company anticipates interest expense to be flat in 2024 compared with the previously mentioned year-over-year growth. CL expects the 2024 tax rate to be 23-24% on both a GAAP and adjusted basis compared with the 23.5-24.5% stated earlier.
Colgate expects the Base Business’s EPS to increase 10-11% for 2024 compared with the 8-11% rise stated earlier. On a GAAP basis, EPS is expected to rise in the double digits.
Stocks to Consider
We have highlighted three better-ranked stocks from the Consumer Staples sector, namely Clorox CLX, Unilever UL and Flowers Foods FLO.
Clorox, engaged in the production, marketing and sale of consumer products in the United States and international markets, currently carries a Zacks Rank #2 (Buy). CLX has a trailing four-quarter earnings surprise of 122.9%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Clorox’s current fiscal year’s earnings suggests growth of 7.6% from the year-ago reported number.
Unilever is engaged in the manufacturing of branded and packaged consumer goods, including food, detergents and personal care products. The company presently has a Zacks Rank #2.
The Zacks Consensus Estimate for Unilever’s current financial-year sales and earnings suggests growth of 1.7% and 8.5%, respectively, from the year-ago period’s reported figure.
Flowers Foods produces and markets packaged bakery food products in the United States. FLO currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for the company’s current financial-year sales and earnings suggests growth of 1% and 5%, respectively, from the year-ago period's reported figures. FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
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