Can Colgate's (CL) Strategies Regain The Stock Momentum?

Shares of Colgate-Palmolive Company (NYSE:CL) declined 5.2% over the last three months, as against the industry’s gain of 5.3%. Moreover, the stock has underperformed the broader Consumer Staples sector that gained 1.4%. However, management remains on track to deliver growth on the back of its savings programs and other initiatives.

Further, this Zacks Rank #3 (Hold) stock exhibits a VGM Score of “D”. Let’s delve deep to explore more about the stock.

Soft Sales Trend & Bleak Outlook

Colgate’s dismal sales trend reveals that its top line has lagged estimates for the last 17 quarters. Moreover, the company’s revenues fell short of expectations for the fifth straight quarter in second-quarter 2017 due to continued softness in North America and challenges in the Asia-Pacific region.

Going forward, the company anticipates the backdrop to remain challenging due to uncertain global markets and slowing category growth worldwide. While it reiterated net sales projection for 2017 anticipating low-single digits growth, the company lowered its organic sales growth guidance on account of a soft first-half 2017.

Furthermore, Colgate anticipates GAAP earnings per share, on a dollar basis, to decline in the mid-single-digit percentage range compared with the previously stated flat guidance.

Consequently, the estimates witnessed downward revisions in the last 30 days. The Zacks Consensus Estimate of $2.89 for 2017 and $3.11 for 2018 has declined 1% and 1.6%, respectively.

Other Headwinds

Foreign exchange continues to be a headwind for Colgate in some markets as it derives around 75% of revenues from outside the U.S. In fact, the Asia-Pacific region and the Hill’s Pet Nutrition business were impacted by negative currency translations in the second quarter. Also, management expects it to hurt results throughout 2017.

In addition, the company faces intense competition from other well-established players in the consumer products industry, such as The Procter & Gamble Company (NYSE:PG) and The Clorox Company (NYSE:CL) on the basis of pricing, promotional activities and new product introductions.

Strategic Initiatives

On the positive side, Colgate has been infamous among investors with its meet or beat earnings track record. The company posted in-line earnings in four of the last seven quarters, while it surpassed estimates in the remaining three.

Further, Colgate is progressing well with its savings programs, as both, its Global Growth and Efficiency Program or 2012 Restructuring Program and Funding the Growth undertakings are delivering impressive results. Evidently, these initiatives contributed in gross margin expansion in the quarter, and expect GAAP and adjusted gross margin to expand in 2017.

With these initiatives, Colgate focuses on reducing structural costs, standardizing processes and enhancing its market share position worldwide. Also, the company aims at opening new environmentally sustainable distribution centers to offer better service to its customers, while also reducing fuel and transportation costs. These programs are expected to contribute significantly toward the improvement of gross and operating margins over the long term.

Moreover, it commands a market-leading position in the oral care and personal care product categories and maintains a disciplined capital allocation strategy. Going forward, the company expects to further grow its market share in 2017 via a series of innovative product launches lined up for the year.

Bottom Line

We believe Colgate’s growth drivers to outweigh the obstacles in the near term, and help regain its momentum.

Meanwhile, you can count upon a better-ranked stock from the same industry, which is Unilever (LON:ULVR) N.V. (NYSE:UN) , with long-term earnings growth rate of 9.4%. Also, it carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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