Consumer products company Colgate-Palmolive (NYSE:CL) today said it will sell its European laundry detergent brands to Procter & Gamble (NYSE:PG). The move is said to be part of a concerted strategy to withdraw from the detergent business and focus on oral and personal care to boost gross margins.
While it's unfortunate for Colgate investors that the announcement didn't go into further detail about either the impact of the segment to be sold or of the deal itself, it also shows the importance of the business to Colgate overall. One-time charges associated with the deal are expected to offset P&G's buyout price anyway. (P&G hasn't issued a formal announcement as of press time, though the purchase does seem to fit with the company's stated strategy of selective acquisitions.)
Even a careful reading of Colgate's annual report doesn't shed much more light on today's news: Colgate lumps all its non-pet nutrition business into one financial reporting segment broadly named "Oral, Personal, Household Surface and Fabric Care." What we can take from the document is that Colgate has recently sold off detergent brands when possible -- the Viva brand in Mexico in 2000, for example, and others in Central America in 2001 -- and not for a particularly notable amount of money given its sizable cash hoard.
So, this is non-news? Certainly as a stand-alone event it's not particularly exciting. Taken as an indicator of the direction of Colgate's business, however, it's more interesting. The nations Colgate is leaving don't include such crucial markets as Germany and the U.K. anyway, raising questions about the company's success selling detergents in Europe to begin with. Instead, its European product focus of late has been in the bathroom with dental and shower products.
Anyway, a focus on oral and personal products is almost certain to deliver better product margins than detergents: It's much easier (and sensible) to develop value-added and premium products in the former segment than in the latter. These and other moves have borne fruit: Gross margins have increased steadily in the last few years at Colgate, and appear to be strong again in 2003.
Dave Marino-Nachison can be reached at [email protected].
