Colgate's Pricing & Productivity Efforts Progress Well: Apt To Hold?

Colgate-Palmolive Company CL has been gaining from its sturdy business strategies, including pricing, innovation and productivity efforts. CL’s innovation strategy has also been proven successful. The company’s shareholder-friendly moves are also quite encouraging.

Let’s Analyze Colgate’s Core Strengths

Colgate has been gaining from strong pricing, the benefits of funding-the-growth program and other productivity initiatives. The company has been implementing aggressive pricing for the last few quarters, which has been bolstering margins. In fourth-quarter 2024, the adjusted gross margin expanded 70 basis points to 60.3%. Pricing improved 1.8% year over year, backed by positive pricing across its few divisions. 

Bold pricing actions and accelerated revenue-growth management plans have been bolstering Colgate’s organic sales. On an organic basis, the company’s sales advanced 4.3% in the most recent quarter, backed by a 2.5% increase in volume and a 1.8% improvement in pricing.

Colgate’s innovation strategy concentrates on growing in adjacent categories and product segments. The company is focused on the premiumization of its Oral Care portfolio through major innovations. Also, at-home whitening and professional whitening products bode well. Its Oral Care business has also been performing well. 

The company has revamped its innovation model, leveraged global strength across price tiers and invested in marketing and capabilities. Colgate’s strategy of offering core and premium innovation and scaling capabilities to boost brand strength and increase household penetration remains on track.

Colgate is well-positioned to achieve consistent, compounded earnings per share (EPS) growth in 2025 and beyond. It expects 2025 net sales to remain relatively flat year over year. CL projects organic sales growth within its long-term target range of 3-5%. It anticipates gross profit margin expansion for the year.

Hindrance to Colgate’s Growth Path

Colgate has been witnessing inflationary pressures and a challenging macroeconomic environment for some time now. Raw material inflation and continued rise in packaging also act as deterrents to the company’s profitability. Higher adjusted selling, general and administrative (SG&A) and advertising expenses remain concerning. 

Management anticipates advertising investment to remain flat or increase slightly both in dollar terms and as a percentage of sales for 2025. Foreign currency fluctuations are also acting as headwinds. Sales view for 2025 includes a mid-single-digit negative impact from unfavorable currency exchange rates.

Conclusion

CL’s pricing and productivity initiatives are likely to address cost issues ahead. Colgate also remains committed to rewarding shareholders with share buybacks and dividend payouts. The company returned $3.4 billion in cash to its shareholders via dividends and share repurchases during 2024. Markedly, it has paid uninterrupted dividends since 1895. 

Shares of this key consumer products’ dealer have gained 5.5% compared with the industry’s 7.6% growth over the past year.

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Analysts seem quite optimistic about the company. The Zacks Consensus Estimate for CL’s sales and EPS for 2025 indicates a 0.3% and 4.2% year-over-year increase, respectively. The consensus mark for 2026 sales and EPS implies growth of 4% and 7.3%, respectively, year over year. Colgate currently carries a Zacks Rank #3 (Hold).

Stocks to Consider in Consumer Staples Space

The Chef's Warehouse CHEF, which is a distributor of specialty food products in the United States, currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CHEF has a trailing four-quarter earnings surprise of 34%, on average. 

The Zacks Consensus Estimate for CHEF’s current financial-year sales and EPS indicates growth of 5.7% and 17.7%, respectively, from the year-ago numbers.

Post Holdings POST, which is a consumer-packaged goods holding company, has a Zacks Rank of 2 at present. POST has a trailing four-quarter average earnings surprise of 22.3%.

The Zacks Consensus Estimate for Post Holdings’ current financial-year sales and EPS implies growth of 0.3% and 2.2%, respectively, from the year-ago numbers.

Utz Brands UTZ, which has a diverse portfolio of salty snacks, currently carries a Zacks Rank of 2. UTZ has a trailing four-quarter earnings surprise of 8.8%, on average.

The Zacks Consensus Estimate for Utz Brands’ current financial-year sales and EPS indicates growth of 1.2% and 10.4%, respectively, from the year-ago numbers.

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This article originally published on Zacks Investment Research (zacks.com).

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