Will Colgate's Growth Plans Help it Combat Currency Woes?

Colgate-Palmolive Co. CL commands a market-leading position in the oral care and personal care product categories. Constant focus on product innovations, globally recognized brands and broad global presence in both developed and emerging markets facilitate the company to take advantage of growth opportunities, thereby enhancing its profitability.

Colgate has been on track with its guiding principles for growth – innovation and in-store implementation. This has enabled the company to capture market share across all regions and categories. Evidently, the gap between Colgate and its closest rival increased from 70 basis points to 7 full points over the past 5 years.

Further, the company continues to progress well with its savings programs, as both, its Global Growth and Efficiency Program or 2012 Restructuring Program and its Funding the Growth undertakings are delivering impressive results.

While Colgate’s Global Growth and Efficiency Program focuses on reducing structural costs to improve gross and operating profit, its Funding the Growth initiative aims at opening new environmentally sustainable distribution centers to offer better service to customers, while reducing fuel and transportation costs. These initiatives are expected to contribute significantly toward the improvement of gross and operating margins over the long term.

Additionally, Colgate has always followed a disciplined capital allocation strategy that focuses on making investments for business development, while using the excess cash to enhance shareholder returns through dividend payouts and share buybacks, thanks to its strong cash generation ability. The company has been regularly increasing its dividend every year since 2001 which highlights its sound financial status and commitment to shareholders.

While all these factors bode well for Colgate, the company’s third-quarter 2015 performance was battered by negative impact from currency fluctuations and a tough macro environment. Looking ahead, these challenges are expected to weigh on Colgate’s full-year performance, with currency headwinds lingering into 2016 as well. This is also reflected by management’s guidance.

Also, the company faces intense competition from other well-established players in the consumer products industry. Failure to offer exclusive high-quality products at competitive prices may hamper the company’s market share, and in turn, dent its overall performance.

Zacks Rank

Colgate currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is The Clorox Company CLX, with a Zacks Rank #2 (Buy). Other well-ranked stocks in the consumer staples sector include Campbell Soup Company CPB and Dean Foods Company DF, each sporting a Zacks Rank #1 (Strong Buy).

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