Colgate-Palmolive (CL) Up 2.9% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Colgate-Palmolive (CL). Shares have added about 2.9% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Colgate-Palmolive due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Colgate Beats on Q1 Earnings and Sales, Withdraws View

Colgate has reported first-quarter 2020 results, wherein earnings and sales beat the Zacks Consensus Estimate. In the reported quarter, gains from strong volume growth and robust pricing were offset by unfavorable foreign currency. The company has withdrawn its guidance for 2020 due to the uncertainty regarding the coronavirus pandemic.

Notably, it expects a mid-single-digit negative impact related to foreign exchange on net sales for 2020, based on current spot rates. Moreover, incremental volume growth witnessed in the first quarter is likely to be balanced in the quarters ahead as consumers work on pantry inventories in certain categories. Additionally, the company expects to witness reduced category growth in many markets due to the uncertain consumer behavior and government actions in relation to the COVID-19 outbreak.

Adjusted earnings of 75 cents per share rose 11.9% from the prior-year quarter and surpassed the Zacks Consensus Estimate of 73 cents. Including one-time items, earnings were 83 cents per share, reflecting growth of 27.7% from 65 cents earned in the year-ago period.

Total net sales of $4,097 million rose 5.5% from the year-ago period and beat the Zacks Consensus Estimate of $4,056 million. The year-over-year improvement can be primarily attributed to a 7% increase in unit volume and a 2% rise in pricing, somewhat offset by a negative currency impact of 3.5%. On an organic basis, the company’s sales improved 7.5%.

Let's Delve Deeper

Adjusted gross profit margin of 60.3% increased 110 basis points (bps) from the prior-year quarter. In dollar terms, adjusted gross profit rose 7.4% to $2,469 million.

In the reported quarter, adjusted operating profit of $958 million increased 6% from the year-ago quarter. However, adjusted operating margin was flat with the prior-year quarter at 23.4%. Operating margin was mainly impacted by rise in adjusted selling, general & administrative expenses, as a percentage of sales, which partially offset the increase in gross margin.

Colgate’s market share of manual toothbrushes reached 32.1% year to date. Further, the company continued with its leadership position in the global toothpaste market, with market share at 40.5%.

Segmental Discussion

North America’s net sales (23% of total sales) improved 9%, reflecting a 9.5% rise in unit volume, offset by a 0.5% negative currency impact. Pricing remained flat in the quarter. On an organic basis, sales grew 8%, driven by growth in the United States.

Latin America’s net sales (22% of total sales) were flat year over year as 4% growth in unit volume and 6.5% gains in pricing were partly offset by negative currency impact of 10.5%. On an organic basis, sales were up 10.5%, led by Argentina, Brazil and Mexico.

Europe’s net sales (16% of total sales) increased 12% year over year on a 16.5% rise in unit volume, somewhat offset by a 1.5% decline in pricing and a 3% adverse impact of unfavorable currency exchange. Further, organic sales in Europe increased 6.5% on robust growth in the U.K. and Germany.

The Asia Pacific segment’s net sales (15% of total sales) declined 9.5%, attributable to an 8.5% fall in unit volume and a 2% negative impact of unfavorable currency rates, offset by 1% pricing gains. On an organic basis, sales for the Asia Pacific declined 7.5% mainly due to a decline in Greater China and India, partially offset by organic sales growth in Australia.

Africa/Eurasia’s net sales (6% of total sales) grew 5% year over year, owing to a 10% rise in unit volume, offset by a 0.5% decrease in pricing and a 4.5% adverse impact from foreign exchange. Organic sales for Africa/Eurasia improved 8%, driven by gains in Turkey and Russia.

Hill’s Pet Nutrition’s net sales (18% of total sales) rose 20% from the year-ago quarter. Results gained from a 17% increase in unit volume and a 4% rise in pricing, offset by a 1% negative impact of currency. On an organic basis, sales were up 21%, aided by gains in the United States and Europe.

Other Financial Details

Colgate ended first-quarter 2020 with cash and cash equivalents of $854 million, and total debt of $7,846 million. Net cash provided by operating activities amounted to $768 million as of Mar 31, 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Colgate-Palmolive has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Colgate-Palmolive has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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