Colgate Reports Sluggish Results; Muted Guidance
Colgate-Palmolive Co. (NYSE: CL – $64.22) is priced at a new 52-week low after reporting disappointing fourth quarter results. New York-based Colgate’s organic sales growth of 1.5% was mainly driven by a 2.5% rise in prices and not due to volume growth, which fell 1 percent, well below the estimate of 4.7% growth and the weakest since the fourth quarter of 2010. Sales in Europe fell 7.5% to $539 million, in the latest period, hurt by declining volumes in France. The company said a strong dollar reduced revenue by 1.5%. Sales in North America, Colgate’s second-biggest market, rose slightly to $790 million. Net revenue for the quarter fell nearly 5% to $3.72 billion, while analysts on average had expected $3.87 billion. Excluding certain items, Colgate earned $0.75 per share, in line with Street consensus and two cents better than a year ago. On the bright side, gross profit margin was 60.3% in full year 2016, an increase of 160 basis points versus full year 2015, thanks to various cost-saving initiatives, partly offset by an increase in SG&A expenses as a percentage of sales.
Based on the current exchange rate, Colgate said it expects a low single-digit rise in net sales and earnings per share in 2017. While under-performing this past year, the shares have returned nearly 68% since entering the conservative list plus providing investors a 2.3% annual dividend. This issue remains suitable for conservative investors bent on capital preservation along with decent price appreciation potential over the long-run. Steady growing dividends, share-repurchases, a dominant position in the oral care field and exposure to favorable emerging market population trends are appealing traits. I will continue to hold CL for now.