Colgate-Palmolive: Should We Buy This Global Titan Going Into First-Quarter Earnings?

Colgate is about to release its first earnings report of fiscal 2014, so let's see if we should be buyers right now.

Apr 20, 2014 at 10:00AM

Colgate-Palmolive (NYSE:CL), the undisputed king of oral hygiene and the company behind brands such as Colgate, Speed Stick, Irish Spring, Softsoap, Palmolive, and Hill's Pet Nutrition, has scheduled its quarterly results for release in just a couple of days. Let's take a look at its last set of quarterly results, analysts' expectations for the upcoming report, and preview one of its top competitors, Procter & Gamble (NYSE:PG), to decide if we should buy or avoid Colgate right now.

Screen Shot

Source: Colgate-Palmolive

The last quarterly report
Colgate released its fourth-quarter report for fiscal 2013 on Jan. 31 and the results came in mixed in comparison with expectations; here's a breakdown and a year-over-year comparison:

MetricReportedExpected
Earnings Per Share $0.75 $0.74
Revenue $4.36 billion $4.40 billion

Source: Benzinga

Equity

Source: Colgate.com

Colgate's earnings per share increased 7.1% and revenue increased 1.8%, as global unit volume grew a strong 6.5%. Organic sales increased 6.5% led by the emerging markets where organic sales rose 10.5%, which shows that the company's innovation and advertising is paying off. Also, gross profit rose 2.5% to $2.57 billion and the gross margin showed strength, expanding 50 basis points to an impressive 59.1%. Although all of these statistics look great, the highlight of the quarter came with Colgate's updated global market share data:

CategoryToothpasteManual ToothbrushesMouthwash
Market Share 44.9% 32.8% 17%

Source: Colgate-Palmolive

It's hard to comprehend that one company can have a 44.9% market share in any industry, but it just goes to show the superiority of Colgate's offerings in comparison with those of the competition. In summary, Colgate had an all-around great quarter regardless of what analysts expected, but its stock reacted by falling 0.42% in the trading session that followed; however, it quickly rebounded and now sits over 5% higher. 

Expectations & what to watch for
Colgate plans to release its first-quarter results before the market opens on April 25 and the current estimates call for growth on both the top and bottom lines; here's an overview:

MetricExpectedYear Ago
Earnings Per Share $0.68 $0.66
Revenue $4.35 billion $4.32 billion

Source: Estimize

Screen Shot

Source: Colgate-Palmolive

These expectations call for Colgate's earnings per share to increase 3% and revenue to increase 0.7% year-over-year. Key metrics aside, here are three important factors and updates to watch for in the report:

  • First, it will be crucial for Colgate to provide guidance for the second quarter that is within analysts' expectations. The current consensus estimates project earnings per share of $0.74 on revenue of $4.44 billion, which would represent growth of 5.7% and 2%, respectively, from the second quarter of fiscal 2013.
  • Secondly, when it provides second-quarter guidance it will be important for Colgate to reiterate that it expects fiscal 2014 results to be "in line with the external analyst estimates;" currently, consensus analyst estimates call for earnings per share of $3.00 on revenue of $17.79 billion, which would result in growths of 5.6% and 2.1% from fiscal 2013.
  • Lastly, watch for Colgate to give market share updates on toothpaste, manual toothbrushes, and mouthwash. The company will likely maintain its shares in toothpaste and manual toothbrushes, but watch for expansion of its mouthwash share; in the fourth quarter, Colgate expanded its market share in this category by 130 basis points to a record 17% and I believe this could grow to over 18% by the conclusion of fiscal 2014.
If Colgate can meet or exceed the earnings estimates and satisfy these three factors, and I believe that it will, the stock will likely appreciate and set a new 52-week high; it is for these reasons that I believe Foolish investors should initiate positions on any weakness in the coming days.

A competitor's report to watch for
Procter & Gamble, the company behind several brands that compete with those of Colgate-Palmolive, has scheduled its quarterly results for release on April 23. This will be an important report to watch for, as it will be a great gauge for the condition of the industry. Here's a summary of what analysts currently expect the report will hold:

MetricExpectedYear Ago
Earnings Per Share $1.02 $0.99
Revenue $20.68 billion $20.60 billion

Source: Estimize

Screen Shot

Source: Crest's Facebook

These estimates call for P&G's earnings per share to increase 3% and revenue to increase 0.4% year-over-year. The health care, beauty, and home care segments will be the ones to watch in the report, as they contain brands such as Crest, Oral-B, Old Spice, and Iams which directly compete with Colgate's brands.

By analyzing how these competing brands performed, we will have a strong feel for the condition of the consumer and the industry as a whole; as a result, this will either further support or oppose the idea of investing in Colgate, so use the information provided to your advantage.

The Foolish bottom line
Colgate is one of the most dominant companies in any industry and this shows in its immense 44.9% share of the global toothpaste market. The company has scheduled its quarterly results for release in a few days and I believe the estimates are well within reach. Foolish investors should strongly consider initiating positions in Colgate's stock going into the report and holding onto them for several years, as the stock has the potential to appreciate significantly from today's levels while paying a healthy 2.2% dividend.

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Joseph Solitro has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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