Conservative · Stocks to Consider and Updates

Colgate-Palmolive Beats Estimates; Outlook Remains Challenging

Colgate-Palmolive Co. (NYSE: CL – $66.72) reported worldwide revenue of $4.0 billion in first quarter 2018, an increase of 6.5% versus last year’s first quarter. Sales in Latin America however, were weaker than expected – especially in Mexico. Global unit volume increased 2.0%, pricing was even with the year ago period and foreign exchange was positive 4.5%. The professional skin care acquisitions contributed 0.5% to unit volume growth. Organic sales (Net sales excluding the impact of foreign exchange, acquisitions and divestments) increased 1.5%. Allowing for adjustments in both periods, net income in first quarter 2018 was $654 million, an increase of 9% versus first quarter 2017, and earnings per share was $0.74, an increase of 10% versus first quarter 2017’s $0.67. Gross profit margin was 60.3% in first quarter 2018, a decrease of 40 basis points versus the year ago quarter as higher raw and packaging material costs were partially offset by cost savings from the company’s funding-the-growth initiatives. By geography, North America sales increased 10%, Latin America increased 0.5%, Europe up by 16%, Asia Pacific increased 5.5% and Africa/Eurasia showed a 3% increase. Worldwide Hills Pet Nutrition sales were higher by 5.5%.

      Looking ahead, Colgate will continue to face headwinds with both input costs and overall market conditions. The Company expects to see mid-single-digit net sales increase and low-single-digit organic sales growth in 2018, with sequential improvement in organic sales growth in the balance of the year. The shares were trading higher over the past year on acquisition rumors and were somewhat overpriced. At current levels, the stocks trades at a more reasonable valuation of 21 times estimated 2018 full-year earnings. The high-quality shares can continue to be held in a well-diversified conservative portfolio for growth and income. The shares currently yield 2.5%.

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