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Colgate (CL) Earnings & Sales Beat in Q2 on Pricing Plans

·6 min read

Colgate-Palmolive Company CL has reported second-quarter 2022 results, wherein earnings and sales surpassed the Zacks Consensus Estimate. The top line increased year over year, while earnings per share declined.

The company witnessed significant increases in raw and packaging material and logistics costs, as well as volatile currency. Bold pricing actions and accelerated revenue growth management plans acted as upsides.

Shares of the Zacks Rank #3 (Hold) company have gained 5.3% in the past three months against the industry’s decline of 2.3%.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

Quarter in Detail

On a Base Business basis (adjusted non-GAAP), earnings of 72 cents per share declined 10% from the prior-year quarter’s level but surpassed the Zacks Consensus Estimate of 71 cents. On a GAAP basis, earnings declined 13% to 72 cents per share in the quarter under review. The bottom line was mainly impacted by higher raw material and logistics costs worldwide despite sales growth.

Net sales of $4,484 million increased 5.5% from the year-ago quarter’s level and beat the Zacks Consensus Estimate of $4,356 million. On an organic basis, the company’s sales advanced 9%. This marked the 14th successive quarter of organic sales growth, with improvements in all divisions and categories. Also, innovation, brand strength and digital capabilities drove organic sales growth, with double-digit organic sales growth in oral care and pet nutrition.

Total volumes grew 0.5% on both reported and organic basis, and pricing was up 8.5%. The unfavorable currency impact was 3.5%.

The gross profit of $2,554 million declined 0.1% year over year. The gross profit margin contracted 300 basis points (bps) to 57%, both on a GAAP and an adjusted basis.

Selling, general & administrative (SG&A) expenses increased 5.7% year over year to $1,657 million. As a percentage of sales, SG&A expenses remained flat year over year at 37%.

The adjusted operating profit was $884 million, down 11.2% year over year, while the adjusted operating margin contracted 370 bps to 19.7%.

Colgate’s global market share in the manual toothbrushes category has reached 31.3% year to date. The company has continued with its leadership position in the global toothpaste market, with a market share of 39.6% year to date.

ColgatePalmolive Company Price, Consensus and EPS Surprise

 

ColgatePalmolive Company Price, Consensus and EPS Surprise
ColgatePalmolive Company Price, Consensus and EPS Surprise

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

Segmental Discussion

North America’s net sales (22% of total sales) rose 6% year over year. The unit gained from a 3% increase in volume and a 3% positive impact on pricing. Organic sales also grew 6% on gains in oral care, personal care and home care. Year to date, the company’s share in the toothpaste market is 34.3% and in the manual toothbrush market is 42.9% in the United States.

Latin America’s net sales (22% of total sales) advanced 12.5% year over year on 12.5% pricing gains. On an organic basis, sales were up 12.5%, led by growth in Mexico, Argentina, Colombia and Brazil.

Europe’s net sales (14% of the total sales) declined 10% year over year on a reported basis. The unit was affected by a 3% decline in volume and a 10.5% negative currency impact, offset by a 3.5% pricing gain. Organic sales were up 0.5%, whereas volumes were down 3%. Organic sales were driven by Poland and France, partially offset by a decline in the Filorga business.

The Asia Pacific segment’s net sales (16% of the total sales) grew 3.5% year over year, owing to a 3% rise in volumes and a 6% increase in pricing, somewhat offset by a 5.5% impact of adverse currency. Volumes also increased 3% on an organic basis. Organic sales improved 9%, driven by gains in the Greater China region, Australia and the Philippines.

Africa/Eurasia’s net sales (6% of the total sales) dipped 3.5% year over year due to a 17% decline in volume and an 8.5% unfavorable currency impact, offset by a 22% increase in pricing. Organic sales for the segment grew 5%, driven by growth in Turkiye and South Africa, somewhat offset by declines in Russia and Ukraine.

Hill’s Pet Nutrition’s net sales (20% of the total sales) improved 14.5% from the year-ago quarter’s level on a reported basis and 18% on an organic basis. Results have gained from a 5.5% increase in unit volumes (both reported and organic) and 12.5% pricing growth, offset by a 3.5% adverse currency impact. Organic sales were aided by gains in the United States, Europe and Australia/New Zealand.

Other Financial Details

Colgate ended second-quarter 2022 with cash and cash equivalents of $858 million, and total debt of $7,986 million. Net cash provided by operating activities was $914 million as of Jun 30, 2022.

Outlook

Management has retained its guidance for 2022. It anticipates net sales growth toward the higher end of the previously mentioned 1-4% rise. This includes a mid-single-digit unfavorable currency impact compared with the earlier stated low-single-digit adverse currency impact. Organic sales are expected to increase 5-7% compared with 4-6% growth mentioned earlier.

Colgate continues to expect a gross margin decline on both GAAP and adjusted basis for 2022. Advertising investments are expected to increase year over year on both GAAP and adjusted basis in 2022.

The company continues to anticipate earnings growth in double-digits on a GAAP basis. On an adjusted basis, earnings are projected to decline in the mid-single digits.

Stocks to Consider

We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Campbell Soup CPB, Chef Warehouse CHEF and Sysco Corporation SYY.

Sysco, the marketer and distributor of food and related products, currently sports a Zacks Rank #1 (Strong Buy). SYY has a trailing two-quarter earnings surprise of 93.75%, on average. It has an expected long-term earnings growth rate of 11%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Sysco’s current financial-year sales and earnings per share suggests growth of 35.9% and 145.5%, respectively, from the year-ago reported numbers. The company has a trailing four-quarter earnings surprise of 3.7%, on average.

Chef’s Warehouse, a distributor of specialty food products in the United States, currently flaunts a Zacks Rank #1. CHEF has a trailing four-quarter earnings surprise of 372.3%, on average.

The Zacks Consensus Estimate for Chef Warehouse’s current financial-year sales and earnings per share suggests growth of 38.1% and 2540%, respectively, from the year-ago reported numbers.

Campbell Soup, the manufacturer and marketer of high-quality, branded convenience food products, currently carries a Zacks Rank #2 (Buy). It has an expected long-term earnings growth rate of 1.6%.

The Zacks Consensus Estimate for Campbell Soup’s current financial-year sales and earnings per share suggests growth of 10.1% and 15.4%, respectively, from the year-ago reported numbers. CPB has a trailing two-quarter earnings surprise of 10.8%, on average.


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