Colgate-Palmolive Company (CL) on Q3 2022 Results - Earnings Call Transcript

Operator: Good morning. Welcome to today’s Colgate-Palmolive Third Quarter 2022 Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I’d like to turn this call over to Chief Investor Relations Officer and Senior Vice President, M&A, John Faucher. John Faucher: Thanks, Allison. Good morning and welcome to our 2022 third quarter earnings release conference call. This is John Faucher. Today’s conference call will include forward-looking statements. Actual results could differ materially from these statements. Please refer to the earnings press release and related prepared materials and our most recent filings with the SEC, including our 2021 annual report on Form 10-K and subsequent SEC filings, all available on Colgate’s website, for a discussion of the factors that could cause actual results to differ materially from these statements. This conference call will also include a discussion of non-GAAP financial measures, including those identified in Tables 8 and 9 of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the earnings press release and is available on Colgate’s website. Joining me on the call this morning are Noel Wallace, Chairman, President and Chief Executive Officer; and Stan Sutula, Chief Financial Officer. Noel will provide you with his thoughts on our Q3 results and our 2022 outlook. We will then open it up for Q&A. Noel? Noel Wallace: Thanks, John and thanks to all of you for joining us this morning. We continue to execute our growth strategy as we deal with an operating environment that remains very volatile. In the third quarter, we delivered high single-digit organic sales growth with growth across every division. We also delivered growth in all four of our categories, including high single-digit growth in Oral Care, Pet Nutrition and Personal Care. I know elasticities are a big topic of conversation this quarter. While our volumes were negatively impacted by retailer inventory reductions and Hill’s supply chain constraints in the quarter, underlying elasticity remained in line with our expectations and we would expect volume performance to improve sequentially in the fourth quarter as these headwinds abate. We delivered strong pricing growth through revenue growth management and healthy productivity through Funding the Growth and the initial benefits of our 2022 Global Productivity Initiative. This helped us drive a sequential improvement in gross margin in the third quarter despite further increases in raw material prices. The headwinds we face, whether from foreign exchange, raw and packaging materials and logistics costs or macroeconomic uncertainty are significant, but we believe we are well positioned to deal with these issues. We have taken the difficult steps necessary to meet these challenges head on through pricing, productivity, capital deployment and other actions. These actions leave us well positioned to benefit when our markets stabilize. The first reason is our portfolio. We have focused – we have a focused portfolio of leading brands in growing categories competing across multiple price tiers. Consumers use the vast majority of our products everyday: when they shower, when they clean their homes, when they feed their pets and hopefully, when they brush their teeth after every meal. We believe this high frequency of usage, combined with the strength of our brands, helped with our elasticities despite significant pricing. This has been particularly true in Oral Care and our categories generally have low private label market shares compared to many other HPC categories where we don’t compete. Consumers look to trusted brands to provide value and we have built brands over time to deliver value to our customers and our consumers, particularly given our breadth of offerings across price tiers from entry level to ultra premium. And our professional recommendation model in several of our largest categories also helps to provide added value and differentiation to consumers, which builds brand loyalty. And we have high market shares with number one or number two positions in many of our key segments across all four of our categories. We are also well positioned because we are building capabilities and then scaling them across the company in order to drive growth both now and in the future. Our most important capabilities are focused on science-led innovation, particularly in a time when there is so much pricing in our categories, it is vital to add consumer identifiable value. You can see our progress here on brands like Colgate Optic White, Hill’s Prescription Diet, EltaMD and many others. It is also helping to drive improvements in our market share trends. I spent a lot of time at Barclays talking about our digital transformation, an area that is impacting every facet of our business: our e-commerce performance, the ROI of our advertising, a digital-driven supply chain, the use of AI and new product development and even how we are doing our training around the world. Revenue growth management is another capability we are scaling across the organization. We are putting the full force and effort of our data and analytics team into our RGM planning. We believe this is also helping us to make RGM’s decisions to help to lessen the impact of elasticities. So as we head into the Q&A, I want to reiterate that our strategy is working and through an environment that remains uncertain and volatile, we believe we are well positioned with strong brands, scaling capabilities and most importantly, great people. So I will turn it over to the Q&A now. Operator: Our first question today will come from Peter Grom of UBS. Please go ahead. Peter Grom: Hey, good morning everyone. I hope you are doing well. So I wanted to ask specifically on Hill’s. Maybe first, is there a way you could potentially quantify the impact of the supply chain constraints and reductions in retail inventory had on organic sales in the quarter? And then maybe more importantly, I know you mentioned a return to double-digit organic sales growth in September, but can you maybe discuss why you remain confident in the acceleration in the business looking out to the fourth quarter and potentially longer term? Thanks. Noel Wallace: Yes. Thanks Peter. Let me go back to the strategy. And I think as it underpins some of the – obviously, the supply chain constraints that we had earlier in the quarter, which is obviously based on really high demand for the brand. And we have had nine quarters of double-digit growth on that business with fundamentally the same supply chain network. So if you go back to the core elements of the strategy, really building science-driven innovation that we translate into claims for the consumer, claims for our vets and vet technicians that drives to endorsement of our brand. We translate that digitally across the enterprise run our e-commerce business ahead of general market shares. Ultimately, that is driving strong consumption. What happened in the early part of the quarter is the supply chain is obviously at 100% capacity, pre, obviously, the acquisitions of Red Collar and the acquisition that we made in Europe. We now have the ability to really free up capacity moving forward. We are going to be able to do a lot more efficient production in our existing facilities. We are transferring a lot of that volume into the new Red Collar facilities, which are coming upstream as of October. So we feel very good moving forward. And as you mentioned, we exited the quarter back in double-digit growth. So strong consumption in the business, shipments outpacing – excuse me, consumption, obviously, outpacing shipments and we feel very good about where we are in the next 3 to 6 months as we integrate the Red Collar acquisition and continue to operate our plants more efficiently in the existing network. Operator: Our next question today will come from Dara Mohsenian of Morgan Stanley. Please go ahead. Dara Mohsenian: Hi, good morning. So, obviously incredibly strong pricing in the quarter. We haven’t seen that level of quarterly growth in decades. So it would be helpful just to understand what you are seeing competitively out there given such strong Colgate pricing. Are you content with price gaps? Are you generally seeing competitors follow or might there be adjustments that are needed as you think about that pricing line going forward? Thanks. Noel Wallace: Yes, good morning Eric. Thanks. Let’s go back to, again, what we have been discussing all year. We took pricing obviously as we articulated in the second quarter, particularly across North America and other divisions. That pricing continued obviously in the third quarter. We have led pricing in many of our markets and that has been fundamental to the growth of the business right now. We believe it’s critical to get the pricing into the P&L. We have now seen competitors begin to follow. So that should alleviate some of the volume pressure that we saw early in the quarter, but we feel very good about where we are with pricing. We obviously feel that the market will continue to hold that pricing as we see a very constructive market, as I have discussed in the past, with competition. Now competition was a little slow to follow, but we have seen that in the later end of the quarter that most of our competitors have followed in our core categories. So we feel pretty good. We talked about elasticities upfront. They are more or less in line with where we articulated at Barclays. We have seen a little bit more elasticity given the pricing that we took in some of the Home Care businesses. But again, we took Home Care pricing ahead of competition and competition is now following. So, we expect that to alleviate as we move forward. But overall, we feel pretty good about where we are. Obviously, foreign exchange is the new dynamic we are dealing with and having lots of discussions with the team on how to manage price volume moving forward, but we feel very good about where we are right now. Operator: Our next question today will come from Andrea Teixeira of JPMorgan. Please go ahead. Andrea Teixeira: Thank you. Good morning. So can you comment a bit on the pace of volumes exiting the quarter? I think you alluded to the fact that Hill’s got better with the acquisition. I know it takes, you mentioned, 3 to 6 months. I just want to reconcile, Noel, your comment also on pricing that your competitors are following now and then you hope to alleviate. Should we expect like the way the quarter unfolded that volumes were not as bad as you exit the quarter? Thank you. Noel Wallace: Yes. Thanks, Andrea. Volumes improved as we exited the quarter as we talked about, obviously some of the supply chain constraints upfront on Hill’s. We talked about post Barclays, as you remember we saw some early warning signs in the online business on our trade partners taking inventory down. We had not seen it in brick and mortar at that stage, but we had communicated that, that’s not to say that might happen towards the end of the quarter, which is exactly what happened. We saw some inventory come out in some of the key retailers in North America. We obviously saw continued reductions in inventory on Amazon throughout the quarter and that ultimately led to roughly 100 basis points of headwinds on the quarter. Take that with additional 50 basis points of Russia impact in the quarter and obviously some of the supply chain constraints. So, we feel good about volume sequentially improving in the fourth quarter. Obviously, consumption seems to be holding out, but we have to bear in mind that there is a lot of pricing going in the market across multiple categories. So we will continue to watch that very carefully. We have also obviously had to pull a little bit of the advertising back in the quarter as we saw consumption across most categories slowdown in Europe and obviously the constraints on Hill’s. Hill’s, we moved that money to the fourth quarter to continue to drive consumption and exit the year strongly. We do not want to be cutting investment. We believe this hopefully, some of these volatility is short term. Our focus is continue to invest behind the brands and drive consumption as we move into 2023. Operator: Our next question is going to come from Chris Carey of Wells Fargo Securities. Please go ahead. Chris Carey: Hi, good morning. Can you just perhaps comment on how you feel about gross margin progression, really pricing still coming in quite strong and the commodity impact actually worsened sequentially. But ultimately, commodities will ease going forward and into next year and presumably productivity remains a good story. So in the context of what you are seeing on the volume side, do you feel like you might need to reinvest back some to drive demand within promotions and perhaps that can reduce net pricing? But in general, it does feel like you are weathering quite a bit of commodity pressure here with pricing and these things are going to ease going forward. So I wonder if you could just give a sense on how you feel about gross margin progression over time? Thanks. Noel Wallace: Sure. Let me just – I will take it conceptually and strategically the top and then let me turn it over to Stan to give you a little bit more color. Overall, strategically, as we talked about coming into the second quarter, we felt it was very important to get ahead of the inflationary environment and take as much pricing as we could. We watch that very carefully obviously with consumption. You combine that with the initiatives that we set out for 2022 with our Global Productivity Index. We felt it was very important to get ahead of this, which we announced back in 2021. And we are seeing that coming through on the gross profit line, obviously, gross profit up sequentially in the quarter despite 920 points of headwind in the gross margin reconciliation. So we feel that was important to get that in and we will continue to take pricing as necessary. Raw materials, I will turn it over to Stan to give you a flavor of where those are right now. We have seen a little bit of pullback, but more or less, we are still seeing significant increases versus where we were last year. Stan? Stan Sutula: Yes. So we have seen some modest movement in materials cost. But overall, we continue to see raw materials as a full year 2022 as $1.3 billion full year increase. As a reminder, that’s 23% year-to-year. In the third quarter, as Noel highlighted, it was 920 points, so a little bit of color underneath that. Oil has generally been lower since our last call, but now has kind of creep back to where it was then. We have seen ag as an offset here. It increased versus our previous guidance, particularly around proteins, corn, etcetera and those are notably higher versus where we were in July. Partially offsetting that, we have seen palm oil has actually come in a decent amount. Now, that’s favorable, but tallow, soybean and other oils are still showing elevated levels of inflation. So, that’s what keeps us at the $1.3 billion for the year. As a reminder, we lock in, so typically and this quarter is no exception, we are largely locked in for fourth quarter. Now one of the common – while natural gas is not a raw material per se, we do use it to power our plants, particularly in Europe. And that’s been volatile and continues to escalate. So as we expected, raw materials continue to move, but overall, still see $1.3 billion. And this is why we have our GPI program, our Funding the Growth program as we look to take productivity to mitigate that 920 point headwind. Operator: Our next question today will come from Bryan Spillane from Bank of America. Please go ahead. Bryan Spillane: Thanks, operator. Good morning. Stan maybe if I could just pick up on the last question. Can you just give us a sense of just given how volatile maybe raw material costs have been, are you locking in or hedging further out? And as we begin to kind of look at 2023, is there – how far ahead are you in terms of being locked in on raw material costs for ‘23? Stan Sutula: Yes. Thanks for the question, Bryan. So as we look, we’ve seen the volatility. While we’ve had movement up and down, the $1.3 billion is exactly the same number we highlighted out of last quarter. So while we’ve seen components move up and down, we’ve only seen modest movement on a net basis. We typically lock in the next quarter, and then we do, do some longer-term pricing into that, mock that in out quarters. But it’s relatively modest. As you’d expect, the near quarter gets the most, and then it kind of scales down. But today, we’re not going to give 2023 guidance. What we are looking at is the movement that we see. We’re trying to make sure we’re very prudent on not locking in areas that we think are going to moderate over time. And then we don’t do a lot of hedging. So we do some in the ag space, but we don’t do a lot of hedging among the others. We think price is the ultimate hedge. Operator: Our next question will come from Jason English of Goldman Sachs. Please go ahead. Jason English: Hey, good morning, folks. Thanks for slotting me in. A couple of quick questions I’ll try to squeeze in. So back to the $1.3 billion inflation, our quick math suggests that implies a reasonable amount of moderation in the fourth quarter. Still inflation, but certainly less than what we’ve been seeing in the last two quarters. A, is that right? And secondly, in your Q, you give round numbers on percentage of sales by category. And I know they are round numbers. So there can be a lot of variability there. But it does suggest that you’re seeing year-on-year declines in your Personal Care and Home Care categories. Can you just maybe elaborate a little bit on what you’re seeing within those individual categories? Thank you. Noel Wallace: Yes. Let me take the categories first, and then I’ll let Stan provide a little bit more color on the raw materials and where we see the fourth quarter. Categories, by and large, are where we estimated. Obviously, we’ve seen a little pullback in the Home Care categories, but Personal Care, Oral Care and Pet Nutrition continue to be quite healthy, particularly given the pricing that’s going into the category. Relative to year-on-year, I mean, all of our categories in terms of how we play them are up. There may be some impact from foreign exchange there, Jason. But other than that, we see good growth across a broad nature of our categories. Stan Sutula: And on the raw materials, Jason, we said in our last call that we thought this is going to peak in Q3. We continue to believe that. So while the full year still holds at $1.3 billion, we do expect some slight moderation in Q4. And again, we’re largely locked in for that. Noel Wallace: Yes. The one area I’d add is ag prices and some of the specialty ingredients that we use in Science Diet and Prescription Diet, those continue to be quite high. So we’re watching those quite carefully as we move into ‘23. Operator: Our next question today will come from Kevin Grundy of Jefferies. Please go ahead. Kevin Grundy: Great, thanks. Good morning, everyone. Wanted to pivot, Noel, ask a question on portfolio strategy, two parts to it. The first one, the overall level of satisfaction with the portfolio. As you sit here today, any updated thoughts on where you potentially would want to augment through M&A. And the second part, as it pertains to Hill’s, which is a business which has done extraordinarily well here recently, there is a view in the marketplace there is potentially some latent value in the Colgate portfolio, specifically related to that business. Love to get your thoughts there, perhaps remind us of the Board’s approach to portfolio assessment. Thanks for that. Noel Wallace: Yes. Thanks for the question. In a world of significant volatility, we are really pleased with the diversity of the categories we compete in. They are carefully curated categories. We’re highly focused on four. As you all know, we’ve been focused on four for a long, long time. We have deep understanding in those four categories. We believe they are well constructed and well positioned for future growth whether you’re looking at consumption opportunities, whether you’re looking at price-driven opportunities in terms of premiumization. And obviously, they are all not going to run in tandem. And we’ve obviously done some great things in the Pet Nutrition categories. We’ve pivoted a lot of that strategy over the last 4 years, and you’ve seen the success of that. You’ve seen the success in this year as we’re driving broad-based growth across all of our categories, which I talked about initially. Very happy with skin health. Obviously, the professional skin business in the U.S. continues to perform very well. Yes, the Filorga business in China continues to be a challenge, given the lockdowns we’ve seen in China and the lack of travel of Chinese consumers around the world. But overall, we feel the ebb and flow of our categories is exactly where we want to be right now. And we feel very fortunate that we’re very focused on four, and all those categories are growing today. Operator: Our next question will come from Olivia Tong of Raymond James. Please go ahead. Olivia Tong: Great. Great, thank you. My question was more around expenses. First on commodities and raw mat, is it possible to kind of parse out how much currency played a part versus inflation on a constant currency basis? And then on advertising, if you could just give a little bit more color. It sounded like most of that was related to the disruption in Hill’s. Just a little bit more color in terms of your ongoing expectations, particularly in sort of the digital aspect, given what we’ve heard from some of the digital advertisers. Thank you. Noel Wallace: So let me start with the expenses piece. So on raw materials, obviously, we operate in over 200 countries and territories. So as you think about the currency impact on our overall portfolio, that also impacts our raw materials. So I wouldn’t say it’s outsized in any particular one. Some materials are sourced from one or two suppliers, so they’ll have an outsized impact while others are sourced locally. And those have a natural hedge, if you will, from a currency aspect. So FX, as you think about the impact to raw materials, you should think about that largely in line with the impact of the overall company, and that will vary slightly by division. Stan Sutula: On advertising, Olivia, you heard us say that on a dollar basis, we were down about 3%, but on a local currency basis, we were up 2%. So overall, we still feel good with the impact we’re having in the markets. We’ve done a lot of work, as others have done, to really optimize our spending with obviously a move of 50-plus of our spending now, 50% plus of our spend in digital. We’re able to get much more deep into the analytics and the ROI metrics. We’re doing a much better job at personalizing our content. As I’ve talked about before, over 40,000 people around the world on our digital transformation, media being an important part of that. So we feel we’re getting much better. We pulled back a little in Europe as we saw a pretty significant drop off in the categories. And so we wanted to be prudent as we thought about investment moving forward. And as I mentioned earlier, we pulled back a little bit in the third quarter at Hill’s, but transferred that money into the fourth quarter to continue to drive consumption as we bring on more capacity. Operator: Our next question will come from Callum Elliott of Bernstein. Please go ahead. Callum Elliott: Hi, thanks for the question. Another portfolio question, if that’s okay. I just wanted to ask you, can you talk please about the operational integration of the Oral Care business with the Personal Care and Home Care businesses, and specifically with a view to how difficult would it be to separate parts of or all of Personal Care, Home Care, if you were to change about the value of those Personal Care, Home Care businesses to the overall company? Noel Wallace: Yes. What I’m going to do is step back again and talk about the strategy of the company and why it’s working. And I think the results today illustrate that our growth strategies across all of our businesses and how we integrate those businesses and scale our capabilities are delivering strong performance for the overall business, 15 quarters now of organic sales growth within our 3% to 5% target range. We’ve had growth in every division in all four of our categories. And we’re particularly pleased, obviously, this quarter with high single-digit growth in Oral Care, our Personal Care business as well as our Pet Nutrition business. A key part of that strategy, which I think gets to the heart of your question, is how we’re leveraging our capabilities across the enterprise. We’ve talked about our science-driven approach, clinical substantiation for our products that drive claims, consumer acceptance, drive – lead to professional endorsement. As you know, we have a strong professional model across our pet business, our Oral Care business as well as our skin health business. We’re leveraging those learnings. In fact, over the last 1.5 years, we put an organization in New York simply to look at how we continue to optimize and sharpen our professional strategies as we see brand recommended most often is a key driver of saliency for the brands and the equities and ultimately loyalty. Our digital transformation largely initially led by Hill’s. We have now taken their capabilities, their talent and use those across the entire enterprise to further our digital capabilities. You’ve seen our e-commerce business is one of the fastest-growing channel businesses that we have today. Our market shares in markets like China, which is the biggest e-commerce market, are outdelivering against any other competitor in the market. And we really attribute that to leveraging the scalability of certain capabilities across the enterprise. So again, we like the four categories we compete in, a lot of similarities, a lot of overlap. And we continue to see that executed in terms of the results that we’ve delivered today. Stan Sutula: One thing I’d add there, I think, is that integration extends to our supply chain. One of our key attributes here is the production that we do across the world. And we integrate that particularly across Personal Care, Home Care and Oral Care, and that gives us a lot of leverage. Operator: Our next question today will come from Lauren Lieberman of Barclays. Please go ahead. Lauren Lieberman: Great, thanks. Good morning, everyone. I guess two things. First off is you’ve commented quite a bit on elasticity and feeling – saying it’s very much in line. And I think you’ve done a nice job calling out Hill’s and then the inventory destocking in North America. But one thing that jumped out to me was just the volume performance in Latin America. So if you could just give – from other companies, I think we’ve kind of seen what looks like a bit better resiliency in the face of pricing. So just curious if you could offer some more detail on Latin America? And secondly, I was just curious on your view broadly on inflation in grocery into 2023. How much more space do you think there is for incremental pricing across your portfolio? Is it terribly different domestically versus internationally? I’d just be curious for some perspective on that as well. Thanks. Noel Wallace: Yes. Thanks, Lauren. Let me talk to Latin America. In fact, I just got back from trips to Brazil and Mexico. So the information is very fresh. You saw the 20% pricing that we took in Latin America, obviously, following significant pricing in the second quarter, about 12.5. And as I mentioned upfront, we have led in pricing across all of our categories in Latin America. And as a result of leading, it took time for the others to catch up. And obviously, you got elasticity when the others haven’t catch up is going to be a little bit higher. As we exited the quarter, we started to see volumes improve, particularly across Personal Care and Oral Care. Home Care, a little slow to recover, but we will see – I think we will see that stabilize as we move forward. But overall, the plans I saw in place in both Brazil and Mexico were really, really strong. Shares, very good in Brazil, a little soft in Mexico, particularly in Oral Care, given the fact that we took aggressive pricing competition follow initially. As I was leaving those markets, competition followed. So we feel pretty good as we move into the fourth quarter and into 2023. And the innovation plans that we have in place and the premiumization plans we have in place in Latin America look really, really strong. In fact, in both Mexico and Brazil, we have seen our share of the premium segment grow sequentially over the last five quarters, six quarters. So we feel good about where we are there. We’re also, as we’ve talked about in the past, the importance of our core businesses, relaunching some of our core businesses to ensure that if we do see trade down and we continue to provide value at the opening price point, we’re there for that consumer, so overall, feeling good about Latin America as we move into the fourth quarter and in 2023. Relative to inflation moving forward, listen, I think everyone is going to deal with that how they see fit. We will continue to take pricing. I think the key aspect for us is continuing to invest behind brand building. And that brand building ultimately allows us to take more pricing in the markets around the world and continue to drive value to our consumers. Now we will see where the competition goes. If inflation becomes more benign, which I think most people expect it to be, we will watch that carefully. But the pricing environment has been to now very constructive. And we anticipate that as we can bring stronger innovation into the market, continue to invest behind our brands, we will minimize the elasticity. Is there more opportunity in grocery? Absolutely. We will see that as it comes to fruition. But right now, we feel good about where we have taken pricing and particularly the plans we have in place to minimize elasticity. Operator: Our next question will come from Kaumil Gajrawala of Credit Suisse. Please go ahead. Kaumil Gajrawala: Hi guys. Good morning. Can you maybe talk a little bit more about Europe? Obviously, we can see the delivery in the quarter, but an area where inflation might be the most acute is also an area where the consumer might be under the most amount of pressure. So, maybe if you can just talk about your outlook for Europe, particularly as we are going into the winter? Noel Wallace: Yes. You are right. I mean Europe is certainly under the most pressure, particularly around energy pricing. We have taken significant pricing in Europe as others have. It’s – as you go back and look at that in history, it’s the most pricing that’s gone into the business in quite some time. Importantly, we have a good mix of price points covered in Europe. The strength of our Elmex and our Meridol brands, obviously, at the premium side, and Colgate, obviously more in the mainstream, you have seen the combination of those two businesses grow share in the quarter and in the year. So, we feel good about where we are. As I mentioned earlier, I think consistently across the world, a little bit more elasticity in the home care businesses. But we have got some pretty significant re-launches coming in early 2023 on our home care businesses. So, we feel good about the plans in place we have in order to continue to drive consumption there. So, overall, it’s going to be a tough winter. We are going to watch that very closely. We feel we have got a good mix of brands at different price points to deal with the significant inflation that consumer is going to have to deal with. But obviously, a tough six months ahead of the Europeans. Operator: Our next question today will come from Robert Ottenstein of Evercore. Please go ahead. Robert Ottenstein: Great. Thank you very much. Just a couple of sort of follow-up questions. On the inventory side, the retail adjustments, is that – are you confident that’s done at this point? And is there anything on the e-commerce side where there could be adjustments in terms of e-commerce-related inventories? And then second, can you give us any more details on China? We talked about that a lot in the past. How are you doing there? How are the market share trends? And how is that market starting to reopen? Thank you. Noel Wallace: Yes. Good morning Rob. Thanks. On the inventory adjustments, obviously, we saw quite a bit come out towards the end of the quarter. Is it done, we can’t make that prediction. We follow these inventories, as I mentioned, I think on the second quarter call or up at Barclays to the day. I mean particularly with our big customers, we work very much in collaboration with them on the guidance and goals that they have. Invariably, what happens is they may take democratic decisions across all the categories if they are reducing inventories, and we deal with that unexpectedly towards the end of the quarter. We obviously are staying very close to case builds and on-shelf availability and communicating that back as necessary. The last thing they want to do is obviously run out of stocks, particularly with our portfolio, which are significant traffic drivers across the categories in which we compete. So, is it done, it’s hard to say. It is below where they historically have managed their inventories. That usually means that they will bring them back to those levels or something closer, but we will have to watch that very carefully. It’s very difficult for me to predict. A great quarter for China, we have talked about China over the last 2 years in terms of the transformation of our strategy on the ground, which was significant from our entire go-to-market to some of our marketing and innovation plans. We have seen our e-commerce continue to be one of the fastest-growing e-commerce brands in the market. We have seen our brick-and-mortar business stabilize over the last couple of quarters, which is terrific. You saw the growth that we delivered the last two quarters for greater were greater – our Greater China region, we delivered positive pricing and positive volume across our enterprise. We had the Hawley & Hazel, the Darlie re-launch has gone into effect. This is a significant, significant re-launch for the brand, changing the brand name. That’s been quite successful. Our Colgate business continues to track well. So, overall, we feel good. Now no question, the lockdowns are having an impact. The lockdowns have had a significant impact on our Filorga business. They have had a significant impact on some of our premium brands as we have seen those typically translate into slower online sales. But overall, we feel pretty good about where we are. We will see where the lockdowns go. That will open up the market. And as that comes back to a more stable predictability, we feel good about where we are and what we built in terms of capabilities on the ground during a very difficult 18 months. Operator: Our next question will come from Jonathan Feeney of Consumer Edge. Please go ahead. Jonathan Feeney: Good morning. Thanks very much. I just wanted to follow-up about your thoughts about big picture about promotional efficacy. The big debate is how much – I know you talked about everybody is wondering how much promotion is going to come back structurally. But I wanted to dig in and any comment you could have about are more people – people have gotten trained off of buying on deals. So, now a little bit more promos coming back in. It’s a little bit more little-by-little anyway. How is promotional – is promotional efficacy where you are promoting working better or worse than your expectations, particularly in, say, North America and Europe, developed markets? Thanks. Noel Wallace: Yes. Jonathan, thanks for the question. Clearly, I think as the consumer becomes more strapped relative to inflation, they will be more astute in looking at promotions. I can characterize at least where promotional volumes are, particularly for North America. And it would be somewhat a generalized consensus for the rest of the world. Our promotional volumes are slightly down year-to-date. That was deliberately – deliberate. We have pulled back on some aggressive couponing that can drive volume, but doesn’t do much for your P&L. We have seen some of our competitors follow that strategy, not all of them. I would say our two key competitors have taken their promotions up a little bit in the U.S. But you saw the U.S. numbers, at least our consumption continues to be very strong. In North America, we were up or flat in 8 of our 12 categories. Our toothpaste business and toothbrush business continue to perform quite well with share growth. And we have done that with good innovation and pulling back a little bit on promotion. Now, where does it go moving forward, I think promotions will be sharply managed by the categories and by our competitors. And we will have to watch that very carefully. But clearly, I think you would expect to see a little bit more volume sold on promotion moving forward, returning to much more normalized levels given the fact that the trade and our competitors will be looking to drive a little bit more volume in the categories. But we are going to watch that very carefully. Again, I think it comes down to your ability to leverage your portfolio effectively. A lot of the work that we have done in revenue growth management really gets to the heart of that on how to balance entry price point, mid-price point and premium price points in order to drive value to the category and to our customers and ultimately giving the consumer a good proposition to take home. Operator: Our next question will come from Nik Modi of RBC Capital Markets. Please go ahead. Nik Modi: Yes. Thank you. Good morning everyone. Noel, I was just hoping you can reconcile the inventory destocking dynamic. I am just thinking about fill rates are recovering. At the same time, the categories in which you play are high frequency. So, is this just a broader retailer decision based on dollar-based inventory that they are holding across the store, or is purchase frequency, let’s say, within oral care, people are squeezing a little extra out of their tube, and the purchase cycles are getting a little wider. Any perspective around that would be helpful. Noel Wallace: Sure. Trips are down, but starting to turn a little bit. We are not seeing significant changes in, obviously, household penetration across our categories. Consumers may be losing a little bit less. We will have to watch that moving forward. The basic driver in volume has been just more deliberate shifts in some of our trade partners trying to manage their costs, particularly as they see discretionary items slow. They have had to look at, obviously, their full basket of inventory and take inventory down more, quite frankly, across the enterprise. We watch, as I mentioned upfront, very, very carefully with our trade partners. We watch out of stocks. Our case fills are all back up, obviously, looking good across the business with the exception of the early supply chain constraints we had on Hill’s, as I mentioned. But we feel good about where we are from that standpoint, which gives us a lot more visibility and a lot more confidence as we deal with our trade partners to give them what they need. Again, predicting what they are going to do towards the end of the quarter becomes difficult. But I think as these things stabilize, inventories stay down at these levels, the trade will look to high velocity categories is their first priority to take back up because that’s what’s going to drive traffic in their stores. Operator: Our next question will come from Mark Astrachan of Stifel. Please go ahead. Mark Astrachan: Yes. Thanks and good morning everyone. Just a few questions for me. One, could you just comment on what global volume growth would be in your categories? Second, just maybe remind us thoughts about pricing, particularly in pets, if there is any sort of deflation? And then just more broadly on pricing, how are you thinking about maintaining the pricing that you have taken? What would be the expectation for that retention? And has there been any sort of change from a retailer standpoint in terms of your discussions about taking or retaining? And maybe if you could talk a bit – I know some of the questions were talking about that domestically, but maybe if you could talk on a global basis, your perspective, that would be helpful. Thank you. Noel Wallace: Sure. Yes. Global categories, we are tracking today around 3% to 4%, maybe a little shy of that in volumes, but value more or less 3% to 4%. And obviously, as pricing goes into the market, you see the ebbs and flows there. But overall, we expect volumes to recover. We do think purchase cycles, as I mentioned earlier, will get a little bit more elongated. Consumers will watch their consumption and their pantries quite carefully. We have seen – we watch the pantry inventories. We have seen a little bit of that come down, but that’s to be expected. But overall, I mean we are looking at global category growth in the 3% to 4% range. And obviously, we are growing above that generally around the world. And so that obviously leads to better consumption on our categories or at least better shares. In terms of pricing in the categories, our ability to retain that, that depends largely, quite frankly, on our innovation and the value proposition we are bringing to consumers. And we have spent a lot of time. It’s not just taking pricing. There is a lot of re-launches into that RGM strategy that we have been talking about to ensure that across all price points, we are adding value to the consumer, something new and different for them to continue to use our brands and see longevity in terms of the interest they have in our equities. And so we have been very careful to ensure that it’s not just straight pricing that we are bringing value, whether it’s through price pack architecture, through better innovation in terms of science-driven claims, etcetera, etcetera. Specifically on Hill’s, I think it’s very much about the innovation strategy that we have, the Derm Complete launch, significant innovation. The obesity diets that we have, significant innovation in the market. So, that drives real value with the consumer that we can communicate and justify the price increases that we have. So, we will continue to execute against that strategy, and we will watch the categories carefully as we balance volume and price moving forward. Operator: The last question will come from Steve Powers of Deutsche Bank. Please go ahead. Steve Powers: Well. Great. Thanks. I actually want to go back to Europe, and you spoke about this a bit, but I guess I was getting a question just like a little more perspective on your outlook on European profitability and whether or not you thought it is going to get worse before it gets better or whether or not you saw improvement on the horizon. And maybe as part of that, I guess I was also curious what you are seeing from some of your European-based competitors, which are obviously on the other side of the FX wall here and how that may be playing into pricing considerations and competitive considerations perhaps in Europe as a headwind to profitability or maybe it’s – or maybe more globally? Noel Wallace: Yes. Europe had a good quarter. Obviously, this has been an incredible undertaking to get that level of pricing in the P&L. You haven’t seen that, quite frankly, in a long, long time. And I think it plays out – plays back to a lot of the work and the focus that we have had around revenue growth management. Europe is doing an extraordinary job. Steve, you know the trade there can be difficult, but we have seen a lot of good opportunities to take pricing in the categories. It’s also, I think underscored the ability to bring real new news to the categories, and we are doing that across the board. We have strong brands in oral care in Europe. Obviously, Meridol and Elmex at the premium side of the business continue to grow in this environment despite the fact that we have led on pricing. So, we feel pretty good about where we are. I again mentioned that the home care business across the world is the challenge, and we are taking a very deeper look at exactly what we need to do to ensure we continue to drive more volume in those categories. We have got strong businesses in home care in Europe, and we need to be mindful of that. I will mention, I guess as a point private label. Private label, down across all our categories in North America. In market shares, you have seen it inch up, but you would expect a little bit more in Europe. So, we are going to have to watch that. This is a market that will be challenged in the next six months, given the inflationary pressures they are under that everyone is well aware of. And we are thinking very carefully about how to continue to execute successfully. The key is getting pricing in the P&L, which allows us – the leverage that we need to do the things that we need to do moving forward. Operator: This concludes the Q&A portion of our call. I will now return the call to Noel Wallace, Colgate’s Chairman, President and CEO, for any closing remarks. End of Q&A: Noel Wallace: Yes. Well, thanks everyone and good questions. I want to come back to just a couple of concluding remarks. As you have seen, I think our strategy continues to pay off. The broad-based growth is encouraging, all four categories, all six divisions, the innovation stream that we are putting in the market, that’s a testament to a lot of the changes we have made in innovation over the last couple of years, that’s driving premiumization and making sure we sustain our strong core businesses, particularly at the entry level. The digital transformation is having a profound impact on how we operate around the world, how we drive RGM, how we drive content. So, we think we have a well positioned portfolio moving forward. The most important and I am really proud of how our team has executed the strategy to deliver the continued organic sales growth. There has been a tremendous amount of headwinds against the business, but we have now delivered 15 straight quarters of either in line or above our 3% to 5% target. And this quarter was 7% organic, is a terrific quarter. And we are very proud of the work that the teams on the ground are doing. So, with that, I wish all of you a healthy and safe end of the year. And I look forward to speaking to you in January. Operator: The conference has now concluded. Thank you for attending today’s call. You may now disconnect.
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Related Analysis

Colgate-Palmolive's (NYSE:CL) Impressive Quarterly Earnings Report

Colgate-Palmolive (NYSE:CL) is a well-known consumer products company, primarily recognized for its oral care, personal care, home care, and pet nutrition products. The company competes with other giants like Procter & Gamble and Unilever in the consumer goods sector. On April 25, 2025, CL reported impressive quarterly earnings, showcasing its strong market position.

CL reported earnings per share (EPS) of $0.91, surpassing the Zacks Consensus Estimate of $0.86. This marks an improvement from the $0.86 EPS reported in the same quarter last year. The company's revenue reached approximately $4.91 billion, exceeding the estimated $4.87 billion, highlighting its robust sales performance.

The company's price-to-earnings (P/E) ratio is around 26.13, indicating that investors are willing to pay $26.13 for every dollar of earnings. This suggests a positive market sentiment towards CL's future earnings potential. The price-to-sales ratio of 3.73 reflects the market's valuation of its revenue, while the enterprise value to sales ratio of 4.10 shows how the market values the company's total worth relative to its sales.

Colgate-Palmolive's enterprise value to operating cash flow ratio is approximately 20.04, providing insight into its valuation concerning cash generation. The earnings yield of about 3.83% offers a perspective on the return investors can expect. The company's debt-to-equity ratio of 40.15 indicates a balanced approach to financing its assets, while a current ratio of 0.92 suggests its ability to cover short-term liabilities with short-term assets.

Colgate-Palmolive Company (NYSE:CL) Financial Overview and Analyst Insights

  • The consensus price target for Colgate-Palmolive Company (NYSE:CL) has been adjusted downwards, from $102.25 a year ago to $89 a month ago, reflecting a more conservative outlook from analysts.
  • Despite inflationary pressures, Colgate-Palmolive reported a healthy profit margin of 14.4% and surpassed $20 billion in revenue in 2024.
  • With a robust gross profit margin exceeding 60% and a return on total capital of 27.9%, Colgate-Palmolive is considered a strong defensive stock amidst recession concerns.

Colgate-Palmolive Company (NYSE:CL) is a global leader in consumer products, known for its strong brand presence in Oral, Personal, and Home Care, as well as Pet Nutrition. Despite its diverse product offerings, the consensus price target for CL has seen a downward adjustment over the past year, reflecting a more conservative outlook from analysts. A year ago, the average price target was $102.25, but it has since decreased to $89 a month ago.

The company's financial performance in 2024 was impressive, with revenue surpassing $20 billion, as highlighted by Benzinga. This success is attributed to Colgate-Palmolive's strong brand identity and operational discipline. Despite inflationary pressures, the company maintained a healthy profit margin of 14.4% and continued to invest in marketing and research and development, enhancing brand differentiation and price stability.

Analysts are closely watching Colgate-Palmolive's upcoming earnings report, with Jason English from Goldman Sachs setting a price target of $95 for the stock. Despite the downward adjustment in the consensus price target, the company demonstrates financial robustness with significant revenue and margin growth, generating record free cash flow. This positions Colgate-Palmolive well for the future, with a "Buy" rating and a target share price of $100.08 for 2025.

As concerns about a potential recession grow, investors are shifting towards more defensive stocks, with Colgate-Palmolive emerging as a strong candidate due to its non-cyclical nature. The company boasts a robust gross profit margin exceeding 60% and an impressive return on total capital of 27.9%, as highlighted by Seeking Alpha. Despite the conservative outlook, Colgate-Palmolive's stock is considered fairly valued, featuring a shareholder value yield that surpasses its historical average and a reasonable price-to-earnings ratio of 25.6x.

Colgate-Palmolive’s Price Target Boosted at Argus

Argus analysts increased their price target on Colgate-Palmolive (NYSE:CL) to $107 from $97, while maintaining a Buy rating on the stock. The analysts praised Colgate-Palmolive as a well-established company with leading brands and expressed a positive outlook on the company's products that incorporate natural ingredients, as well as its new lines of pet food designed for younger pets and older pets with kidney issues. The company has consistently met or exceeded its long-term target for organic sales growth of 3%-5% over the past four years. Additionally, it has increased its dividend annually for over 60 years, currently offering a yield of approximately 2.1%.

Looking forward, the analysts expect Colgate-Palmolive to focus on enhancing its offerings of premium products, expanding online sales, leveraging analytics, and improving productivity. From a technical perspective, the stock has shown a bullish pattern of higher highs and higher lows since October 2023. On the valuation front, the stock trades at 25 times the analyst’s 2025 earnings per share (EPS) forecast, which is above the peer average of 23.

Given the company’s broadening product range and solid dividend track record, the analysts reiterate a Buy rating. The revised target price of $107 reflects a valuation multiple of 28 times the 2025 EPS estimate.

Deutsche Bank Ups Colgate-Palmolive Price Target to $98 Amid Market Optimism

Deutsche Bank Raises Price Target for Colgate-Palmolive Company (CL:NYSE)

Deutsche Bank's recent decision to raise its price target for Colgate-Palmolive Company (CL:NYSE) to $98 reflects a positive outlook on the company's financial health and market position. This adjustment, representing an 8.17% increase from its current price of $90.6, signals confidence in Colgate-Palmolive's potential for growth and profitability. The announcement, made on April 29, 2024, and detailed by StreetInsider, suggests that Deutsche Bank sees underlying strengths in Colgate-Palmolive that could drive its stock price higher in the near future.

The timing of Deutsche Bank's revised price target coincides with Colgate-Palmolive reaching a new 52-week high, an event that has undoubtedly captured the attention of the investment community. According to a report by Zacks Investment Research, also published on April 29, 2024, there's a growing interest in evaluating the company's fundamentals to understand whether its stock has the momentum to continue its upward trajectory. This surge to a new high, with the stock price peaking at $92.25 over the past year, underscores the company's robust performance in the market.

Colgate-Palmolive's market capitalization of approximately $74.1 billion, coupled with a trading volume of 1,524,884 shares, highlights its significant presence on the New York Stock Exchange (NYSE). Despite a slight decrease of 1.08% to $90.025 on the day of the announcement, the stock's performance over the year—from a low of $67.62 to its recent high—demonstrates a strong upward trend that has likely contributed to Deutsche Bank's optimistic price target.

The fluctuation in Colgate-Palmolive's stock price, ranging between $89.96 and $91.24 on the day, indicates active trading and investor interest in the company. This level of activity, combined with the company's solid market capitalization, suggests that Colgate-Palmolive is well-regarded in the financial markets, with investors closely monitoring its performance for signs of continued growth.

In summary, Deutsche Bank's updated price target for Colgate-Palmolive, set against the backdrop of the company's recent achievement of a new 52-week high and its strong market fundamentals, paints a picture of a company on the rise. With analysts and investors alike keeping a close eye on its performance indicators, Colgate-Palmolive appears to be in a favorable position to capitalize on its current momentum in the market.

Colgate-Palmolive Q1 2024 Earnings Surpass Expectations

Colgate-Palmolive's Impressive Earnings Report Highlights Financial Strength

On Friday, April 26, 2024, Colgate-Palmolive (CL:NYSE) reported its earnings before the market opened, showcasing a significant performance. The company's revenue reached $5.07 billion, surpassing the estimated $4.96 billion, indicating a strong financial outcome for the period. This achievement was a result of a balanced mix of volume and pricing growth, which played a crucial role in driving the top-line revenue higher than expected. The positive outcome of the earnings report was further supported by the company's optimistic revision of their financial outlook, as highlighted by Zacks Investment Research.

The uptick in Colgate's stock following the announcement can be attributed to the expansions in both gross and operating profit margins, which were instrumental in bolstering the company's bottom line. This indicates that not only did the company manage to increase its revenue, but it also improved its profitability, making it a more attractive investment. The detailed analysis provided by Zacks Investment Research underscores the importance of these financial metrics in evaluating the company's performance over time and against market expectations.

The earnings conference call, which featured key company executives and saw participation from financial analysts representing prestigious institutions, underscores the financial community's interest in Colgate-Palmolive's performance and strategic direction. This level of engagement from the financial community is a testament to the company's market position and its ability to generate interest among investors and analysts alike.

Furthermore, Colgate-Palmolive's financial ratios provide a deeper insight into the company's valuation and financial health. With a price-to-earnings (P/E) ratio of approximately 28.77, investors are shown to have confidence in the company's future earnings potential. The price-to-sales (P/S) ratio of about 3.79, enterprise value to sales (EV/Sales) ratio of roughly 4.17, and enterprise value to operating cash flow (EV/OCF) ratio of approximately 22.34, all indicate the market's positive valuation of the company's sales and cash flow. Additionally, the debt-to-equity (D/E) ratio of about 37.78 shows a manageable level of debt, and the current ratio of approximately 1.06 indicates the company's ability to cover its short-term liabilities, further affirming its financial stability.

In summary, Colgate-Palmolive's first-quarter earnings report for 2024 not only exceeded expectations in terms of revenue but also demonstrated strong profitability and an optimistic financial outlook. The company's financial ratios and the interest from the financial community during the earnings call further validate its solid market position and attractiveness to investors.

Colgate-Palmolive Reports Better Than Expected Q1 Results, Lifts Guidance

Colgate-Palmolive (NYSE:CL) released its first-quarter earnings, which exceeded analyst forecasts. The company achieved an adjusted EPS of $0.86, beating the anticipated $0.81. Its revenue also exceeded projections, reaching $5.07 billion against the forecast of $4.96 billion.

Colgate-Palmolive saw a 6.2% increase in net sales and a 9.8% rise in organic sales, continuing a strong performance across all divisions and categories. This growth extends the company's streak of double-digit increases in operating profit, net income, and EPS for the third consecutive quarter. The company also maintains a strong global market share in toothpaste and manual toothbrushes at 41.3% and 31.7%, respectively.

CEO Noel Wallace highlighted the successful execution of the company’s strategy and investments in sustaining business health as key to these results. He expressed confidence in the effectiveness of their strategies for meeting the updated 2024 financial targets and sustaining consistent earnings growth.

For the full year of 2024, Colgate-Palmolive revised its net sales growth guidance upward to 2% to 5%, previously 1% to 4%. This includes an expected mid-single-digit negative impact from foreign exchange fluctuations. The forecast for organic sales growth was also adjusted upward to 5% to 7%, from 3% to 5%. The company continues to expect an expansion in gross profit margin and anticipates double-digit growth in GAAP EPS. For adjusted EPS, the company projects a mid to high-single-digit growth.

Investing in Stability: Colgate-Palmolive's Market Resilience

Seeking Stability with Colgate-Palmolive in Your Investment Portfolio

In the context of seeking stability within an investment portfolio, as discussed in the InvestorPlace article, Colgate-Palmolive (CL:NYSE) emerges as a prime example of what might be considered a "Steady Eddie." The company's recent financial performance for the quarter ending in March 2024, as analyzed by Zacks Investment Research, underscores its potential as a solid anchor for investors. This is particularly relevant in times when the market faces turbulence, such as the recent volatility in the cryptocurrency sector. Colgate-Palmolive's ability to maintain steady financial metrics amidst market fluctuations makes it an attractive option for those looking to mitigate risk in their investment portfolios.

The financial report disclosed by Colgate-Palmolive reveals significant insights into the company's stability and growth prospects. With the stock price witnessing a 1.21% rise to close at $90.37, as highlighted by Zacks Investment Research, it's clear that the company enjoys investor confidence. This price increase is not just a random spike; it represents the highest price point for the year at $92.25, indicating a strong market position. Such performance is crucial for investors seeking reliable stocks that can withstand market pressures and still deliver growth.

Moreover, the trading volume of about 3 million shares, coupled with a market capitalization of approximately $74.39 billion, reflects Colgate-Palmolive's substantial presence in the market. These figures are indicative of a company that is both highly valued and actively traded, traits that are often associated with stable investments. The fact that the stock price has been able to reach its yearly high, moving from a low of $67.62 to $92.25, further attests to its resilience and potential for steady growth.

Understanding the financial health and market position of a company like Colgate-Palmolive is essential for investors, especially in the context of seeking stability as advised by the InvestorPlace article. The detailed look at the company's top and bottom line numbers, as provided by Zacks Investment Research, offers a clear picture of how Colgate-Palmolive stands in comparison to Wall Street estimates and its performance in the previous year. This analysis is invaluable for investors aiming to build a portfolio that can weather market volatility while still aiming for growth.

In conclusion, Colgate-Palmolive represents a compelling case for inclusion in an investment portfolio as a "Steady Eddie." Its recent financial performance, market capitalization, and stock price movements provide a solid foundation for investors looking for stability in uncertain times. As the cryptocurrency market and other investment sectors experience fluctuations, the steadiness offered by companies like Colgate-Palmolive becomes increasingly important for those aiming to secure their financial future.