Today's decline in Colgate-Palmolive's share price can be attributed to...
Colgate-Palmolive's shares took a hit today, plummeting 4.6% after the household product giant failed to meet revenue expectations in its Q4 earnings report and presented a gloomy outlook due to currency constraints.
Revenue Slump
The growth in revenue slowed down from earlier in the year, with the company's previous price hikes no longer contributing positively. Organic sales, which exclude mergers, divestitures, and foreign exchange, increased by 4.3%, but overall revenue dropped by 0.1% to $4.94 billion, falling short of the anticipated $4.99 billion. The strong dollar was to blame, as Colgate derives most of its income from overseas.
Volume sales were up 2.5% in the quarter, with growth in all regions, while pricing also rose by 1.8%. Operationally, the company remained robust, with its gross margin increasing by 70 basis points to 60.3%. Colgate also retained its position as leader in the global toothpaste market (41.4%) and manual toothbrush market (32.2%).
On the profit front, baseline business earnings per share increased from $0.87 to $0.91, surpassing the predicted $0.89. CEO Noel Wallace celebrated the company's success in achieving its objectives of "delivering superior growth, financing future investments, and maintaining flexibility in our P&L to counteract challenges."
Colgate's Outlook
Currency hurdles weighed heavily on Colgate's outlook as it anticipates zero revenue growth for fiscal 2025, with a mid-single-digit negative impact from currency exchange. Organic sales are on track to meet the company's long-term target of 3% to 5%. Colgate also aims for gross profit margin expansion and low- to mid-single-digit adjusted EPS growth.
Although Colgate's revenue missed expectations, it's challenging to blame the company for currency obstacles. Given the situation, the stock sell-off may present an attractive buying prospect for income investors.
Enrichment Insights:Despite the Q4 earnings miss and subdued outlook due to currency headwinds, Colgate-Palmolive has high hopes and future strategies for its revenue and earnings:
- Revenue Forecast:
- Flat Net Sales in 2025: Colgate envisions net sales to remain nearly constant in 2025, dealing with a mid-single-digit negative impact from foreign exchange[4][5].
- Organic Sales Growth: The company remains confident in meeting its long-term objective of 3% to 5% organic growth, despite terminating its private label pet nutrition venture over the course of 2025[4][5].
- Earnings Forecast:
- Adjusted EPS Growth: Colgate projects low- to mid-single-digit adjusted EPS growth in 2025[3][5].
- Gross Profit Margin Expansion: The company aims to keep expanding its gross profit margin, boosted by strong efficiency and pricing, despite the deterrents posed by foreign exchange headwinds[2][5].
- Future Plans:
- Digital Capabilities Investment: Colgate is amplifying its commitment to digital capabilities and product innovation to lead the market[5].
- Brand Health and Innovation: The company will persist in investing in brand health and support innovation, emphasizing digital and data analytics[1][5].
Despite currency challenges, Colgate-Palmolive maintains hope for consistent, compounded EPS growth in 2025 and beyond, fueled by its strong sales growth, operational leverage, and strategic investments in innovation and digital capabilities[1][5].
After highlighting the negative impact of currency constraints on its revenue and outlook, Colgate-Palmolive noted that it still aims for low-to-mid single-digit adjusted EPS growth in 2025 through gross profit margin expansion. Given the stock sell-off following the Q4 earnings miss, the company's challenging currency situation might present an attractive investing opportunity for income-focused investors.