Please ensure Javascript is enabled for purposes of website accessibility

Colgate-Palmolive Returned to Growth in the Fourth Quarter

By Demitri Kalogeropoulos - Updated Apr 23, 2019 at 10:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

But the toothpaste and toothbrush giant forecasts weak selling conditions in 2019.

Check out the latest Colgate-Palmolive earnings call transcript.

Investors were cautious about Colgate-Palmolive (CL 0.59%) ahead of its fourth-quarter report. Like many of its peers in the consumer products industry, the toothpaste titan has struggled with the twin challenges of weak demand growth and spiking commodity costs. Either problem on its own would be relatively straightforward to address, but the combination of the two makes it difficult to protect both market share and profitability.

The company's actual results did little to change that broader narrative, despite pockets of good news regarding both the top and bottom lines. Here's a look at how Colgate-Palmolive's results stacked up against those from the prior year:

 Metric

Q4 2018

Q4 2017

Year-Over-Year Change

Revenue

$3.8 billion

$3.9 billion

(2%)

Net income

$606 million

$323 million

88%

Earnings per share

$0.70

$0.37

89%

Data source: Colgate's financial filings. 

What happened this quarter?

After accounting for currency-exchange swings and one-time tax charges, sales returned to modest growth in the period, but profitability and earnings both declined. The company maintained its dominant market share position, too, despite volume struggles tied to its latest round of price increases.

A woman applies toothpaste to a toothbrush.

Image source: Getty Images.

Some highlights of the quarter:

  • Organic sales rose 2% -- a nice rebound from the prior quarter's slight decline. That was supported by higher advertising and marketing expenses, and new product introductions.
  • Sales gains came entirely from price increases, as global volumes were roughly flat.
  • Gross profit margin declined as the company spent more on commodities, and only passed along part of those cost increases to customers in the form of higher prices. Operating profit margin fell, too, due to rising expenses.
  • Overall, operating profit fell to $891 million, or 23% of sales, from $960 million, or 25% of sales, a year earlier.
  • Colgate's global market share held steady at 42% for toothpaste, and 32% for manual toothbrushes.

What management had to say

CEO Ian Cook highlighted the company's return to growth in the period. "We are pleased with the improvement in organic sales growth this quarter," he said in a press release, "driven by 2.5% [higher] pricing."

Executives said they were happy that demand trends extended the company's "leadership of the global toothpaste [and toothbrush] markets" into 2019, especially given the higher average selling prices across the portfolio.

Looking forward

Cook and his team forecast that 2019 would look a lot like the sluggish year that just closed. Organic sales should rise by between 2% and 4%, they predicted, compared to 2% in 2018. Colgate intends to pass along most, but not all, of the expected increase in manufacturing costs. That fact, plus an expected rise in marketing spending, should ensure that profitability inches lower for a second straight year.

Given the challenges being faced by the industry broadly, management would gladly take that temporary profit drop -- assuming it supports faster sales growth and improved market share. That's essentially what they are predicting, but the modest scale of the sales rebound they expect highlights the fact that they foresee tough selling conditions extending into 2019, which will keep a lid on investor returns.

 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Colgate-Palmolive Company Stock Quote
Colgate-Palmolive Company
CL
$80.14 (0.59%) $0.47

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
317%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.