Please ensure Javascript is enabled for purposes of website accessibility

Do Not Overlook Colgate-Palmolive's Strong Fourth-Quarter Report

By Joseph Solitro – Feb 1, 2014 at 8:30AM

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

Colgate-Palmolive has just released fourth-quarter results for fiscal 2013. Let's take a look at the report and decide if we should be buyers.

Colgate-Palmolive (CL -0.54%), the American toothpaste and soap titan, recently released its fourth-quarter report to wrap up fiscal 2013. The results were mixed compared to expectations, but still caused the stock to rise in the day's trading. Let's take a thorough look at the report and decide if now is the time to buy or if we should wait for it to come back down a bit.


Serving America since 1806
Colgate-Palmolive is a leading global consumer-goods company with a focus on oral care, personal care, home care, and pet nutrition. Its brands include Colgate, Palmolive, Speed Stick, Softsoap, Irish Spring, Protex, Hill's, and numerous others. The company sells products in over 200 countries and territories, which gives it one of the largest footprints of any public company.

The results
Colgate's fourth-quarter results were released before the market opened on Jan. 30. The results were mixed compared to analyst expectations and contained the following statistics:

Metric Reported Expected
Earnings Per Share $0.75 $0.74
Revenue $4.36 billion $4.40 billion

Earnings per share increased 7.1% and revenue increased 1.8%, driven by global unit volume growth of 6.5%. Organic sales rose 6.5% as well, led by the emerging markets where organic sales grew an impressive 10.5%. Gross profit rose 2.5% to $2.57 billion, as the gross margin expanded 50 basis points to 59.1%. This margin expansion, paired with reduced overhead costs, allowed the company to increase advertising spending and drive market share performance worldwide. Here are the updated global market share statistics giving by Colgate:

Category Toothpaste Manual Toothbrushes Mouthwash
Market Share

44.9%

32.8% 17%

It is hard to believe that one company can control nearly 45% of the toothpaste market, but this is a true testament to the strength and consumers' love of the Colgate brand. With this said, mouthwash has been the company's fastest-growing category and saw its market share expand 130 basis points year-over-year. Overall, this was a great quarter for Colgate-Palmolive and I believe that the results will support a rally to a fresh 52-week high.

Outlook for the new year
In the report, Colgate did not give specific statistics as to what it expects fiscal 2014 will hold.CEO Ian Cook did say the following, though:

"As we look ahead to 2014, based on the Company's current growth momentum and our confidence in the strength of our global growth and efficiency program, we are planning for a year of gross margin expansion and strong earnings-per-share growth in line with the consensus of external analyst estimates, excluding charges related to the 2012 Restructuring Program."

With this being said, the current consensus analyst estimates call for fiscal 2014's earnings per share to be about $3.09 on revenue of $18.3 billion. This would represent growth of 8.8% and 5.1% respectively. I believe that these estimates are well within reach and could easily be surpassed due to the strong growth being shown in Colgate's new products and in the emerging markets. This growth will likely result in price appreciation of the stock and the company will return additional cash to shareholders via its healthy 2.2% dividend and share repurchases.

Competitors due out soon
One of Colgate's largest competitors, Church & Dwight (CHD), is about to release its own set of fourth-quarter earnings. The company is home to brands such as Arm & Hammer, Trojan, First Response, Nair, Oxi Clean, and Kaboom, and is also the leading producer of baking soda in the United States. The most competitive brand to Colgate-Palmolive is Arm & Hammer, as it has a very popular line of toothpaste and deodorant. These fourth-quarter results are due out on Feb. 4 and the expectations look like this:

Metric Expected Year Ago
Earnings Per Share $0.66 $0.57
Revenue $823.5 million $809.7 million

These expectations call for earnings per share to increase 15.8% and revenue to grow 1.7% from the same period a year ago. Other than the key metrics, it will be important for Church & Dwight to provide an outlook for 2014 that is within or above Wall Street's estimates; the current expectations call for earnings of $2.77-$2.81 per share on revenue of about $3.2 billion. After Colgate's strong report, I am bullish on Church & Dwight and I believe it would be a strong play going into the report.

The Foolish bottom line
Colgate-Palmolive is one of the greatest companies in American history and its 44.9% market share in the toothpaste category shows that it is here to stay. The company's stock is rallying following its fourth-quarter report and I believe it will continue its rally throughout the year. Investors should look to initiate a position on any weakness in the coming days and hold onto it for several years.

Joseph Solitro has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

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 Stock Quote
Colgate-Palmolive
CL
$75.97 (-0.54%) $0.41
Church & Dwight Stock Quote
Church & Dwight
CHD
$79.49 (%)

*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
351%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2022.

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.