Colgate-Palmolive Company Conference Call Summary Company Overview - **Company**: Colgate-Palmolive Company (NYSE: CL) - **Event**: 21st Annual dbAccess Global Consumer Conference Call - **Date**: June 5, 2024 Key Points Growth Strategy and Performance - The growth strategy implemented five years ago has been viewed as a success, focusing on sustainable compounding growth year after year [3][4] - Key aspects of the strategy include: - Revitalizing core business growth - Expanding into adjacent markets - Focusing on brand penetration rather than just market share [5][6] - The company has maintained its strategy through various challenges, including COVID-19 and hyperinflation, without significant changes [6] Brand Strength and Market Position - Strong brand penetration has been observed, particularly in growth categories such as Oral Care, Pet Nutrition, and Skin Health [9][10] - The company has successfully taken pricing in emerging markets, leading to quick volume recovery [10] - The balance between price and volume is crucial for maintaining gross margins and supporting business investments [13] Premiumization Strategy - A shift towards premiumization has been a significant part of the growth strategy, with a focus on relaunching core businesses and developing premium therapeutic products [16][17] - The company aims to increase its market index from 92 to 100 in the toothpaste category, indicating room for growth [17] - Investments in premium brands like elmex and meridol have resulted in significant market share growth in Europe [19][32] Regional Performance Insights - **Emerging Markets**: Strong organic sales growth driven by high brand loyalty and competitive distribution structures [22][23] - **China**: Cautious approach with a focus on premium online sales; the company has reoriented its strategy towards profitability in this market [25][26] - **North America**: Growth is slower compared to other regions, but investments in brand health and innovation are expected to improve performance [28][29] - **Europe**: Positive consumption trends and effective revenue growth management strategies have led to above-expectation performance [30][32] Financial Health and Margins - The gross margin was reported at 60% in the last quarter, attributed to effective pricing strategies and productivity improvements [46] - The company emphasizes the importance of sustained top-line growth to drive margin improvements [48] Technology and Innovation - Significant investments in technology, including SAP and AI, are aimed at enhancing operational efficiency and driving growth [51][55] - The company is focused on scaling AI capabilities across its operations to improve productivity and decision-making [56][57] M&A and Future Strategy - The company is not relying on M&A for growth but remains open to opportunities that align with its strategic goals [63] - The focus for the 2030 strategy is on organic growth, with a clear understanding of competitive advantages in existing categories [62][63] Cultural Transformation - A cultural shift towards a growth mindset has been emphasized, focusing on brand penetration and local empowerment [70][72] - The leadership team has been proactive in instilling a culture that supports sustained growth and innovation [72] Additional Insights - The company has seen a significant increase in advertising investment, now at 13% of sales, up from 9% [58] - The focus on ROI for digital spending is critical, with a goal to track and optimize every dollar spent [59][60] This summary encapsulates the key insights and strategic directions discussed during the conference call, highlighting Colgate-Palmolive's commitment to growth, brand strength, and innovation in a competitive market landscape.

Core Strategy and Growth - The company implemented a growth strategy five years ago, focusing on sustainable compounding growth and brand penetration rather than just market share [3][4][5] - Key aspects of the strategy include revitalizing core businesses, expanding into adjacent markets, and optimizing channel strategies [5][6] - The company maintained its strategy through various challenges, including COVID-19 and inflation, and continued to invest in growth catalysts [6][10] Brand Strength and Market Performance - The strength of the company's brands has led to consistent profit and EPS growth, with deliberate investments in growth categories such as Oral Care and Pet Nutrition [8][9] - The company has seen improved volume growth and brand penetration, particularly in emerging markets, despite pricing adjustments [12][13][22] - The promotional environment remains constructive, with stable promotional levels in North America and positive volume trends in Western Europe [14][15][32] Premiumization and Innovation - The company is focusing on premiumization, relaunching core businesses, and developing a five-year strategy to target growing therapeutic need states [16][18][19] - Investments in R&D and innovation are aimed at enhancing product offerings and capturing market share in premium segments [19][32] - The company has shifted its strategy to balance investments between core brands and premium therapeutic brands, leading to market share growth [19][32] Regional Performance Insights - Emerging markets have been a strong source of organic sales growth, driven by high brand loyalty and competitive distribution structures [21][22] - The company is cautious about its position in China, focusing on premium and online segments while adjusting its go-to-market strategy [25][26] - North America is projected to grow in line with expectations, with increased investments in brand health and innovation [28][29] Financial Performance and Margin Improvement - The company has successfully improved its gross margin profile, achieving 60% in the latest quarter through pricing strategies and productivity initiatives [46][48] - Revenue growth management has been emphasized to balance price and volume, ensuring sustainable growth in non-discretionary categories [49][50] - The company is committed to maintaining a strong balance sheet while exploring opportunities for organic growth and potential M&A for capabilities [62][63] Cultural Transformation and Mindset Shift - A significant cultural transformation has occurred within the company, instilling a growth mindset focused on sustained top-line growth and brand penetration [69][70] - The organization has adapted to a more localized approach while maintaining a global strategy, enhancing execution and accountability [71][72] - Continuous evolution of the company culture is planned, with an emphasis on integrating new technologies and fostering innovation [72][73]

Core Insights - Colgate-Palmolive Company (CL) is positioned for long-term growth through innovation, market expansion, and leadership in key product categories, achieving a global household penetration of 61.6% [1] - The company reported a 9.8% increase in organic sales for the first quarter of 2024, driven by aggressive pricing and strong consumer demand [1][3] - CL's shares have increased by 24.1% over the past year, outperforming the industry growth of 13.5% and the sector decline of 3.6% [1] Financial Performance - The Zacks Consensus Estimate indicates a 3.9% growth in sales and a 9.3% growth in earnings for the current financial year compared to the previous year [2] - Continued strong pricing and productivity initiatives have contributed to margin improvements in the first quarter of 2024 [3] Strategic Initiatives - Colgate is focusing on innovation and brand investment to enhance market share, particularly in adjacent categories and premiumization of its Oral Care portfolio [4] - The company is advancing its digital transformation and data analytics capabilities to improve revenue and profitability [5] Challenges - Colgate faces headwinds from raw material inflation, packaging costs, and volume softness in China, which have impacted profitability [6] - Foreign currency fluctuations are expected to negatively affect sales in 2024, with a mid-single-digit impact anticipated [6]

Core Insights - Zacks Premium offers various tools to help investors make informed decisions and improve their investment confidence [1] - The Zacks Style Scores provide a unique rating system for stocks based on value, growth, and momentum characteristics, aiding in identifying stocks with high potential for market outperformance [2][3][4] Zacks Style Scores - The Value Score identifies attractive and discounted stocks using financial ratios like P/E and Price/Sales [2] - The Growth Score focuses on a company's financial health and future outlook, analyzing projected and historical earnings and cash flow [3] - The Momentum Score helps investors capitalize on price trends, utilizing factors like one-week price change and monthly earnings estimate changes [3] - The VGM Score combines the three Style Scores to highlight stocks with the best value, growth, and momentum characteristics [4] Zacks Rank and Style Scores Integration - The Zacks Rank is a proprietary model that leverages earnings estimate revisions to guide investors in building successful portfolios [5] - Stocks rated 1 (Strong Buy) have historically achieved an average annual return of +25.41%, significantly outperforming the S&P 500 [5] - To maximize returns, investors should focus on stocks with a Zacks Rank of 1 or 2 and Style Scores of A or B [6] Company Spotlight: Colgate-Palmolive (CL) - Colgate-Palmolive is focusing on innovation and expanding its Naturals product range in response to consumer demand for organic ingredients, achieving a global household penetration of 61.6% [7] - Currently rated 3 (Hold) with a VGM Score of B, CL has a Momentum Style Score of B and has seen a 0.2% increase in shares over the past month [7] - Recent upward revisions in earnings estimates for fiscal 2024 have increased the Zacks Consensus Estimate by $0.04 to $3.53 per share, with an average earnings surprise of 4.4% [7][8]

Core Insights - Investors are increasingly seeking growth stocks that demonstrate above-average growth potential, with Colgate-Palmolive identified as a strong candidate due to its favorable Growth Score and Zacks Rank [1][6] Group 1: Earnings Growth - Colgate-Palmolive's historical EPS growth rate is 2.1%, but projected EPS growth for this year is 9.3%, surpassing the industry average of 9.2% [3] Group 2: Asset Utilization Ratio - The company's asset utilization ratio (sales-to-total-assets) stands at 1.21, indicating that it generates $1.21 in sales for every dollar in assets, compared to the industry average of 0.95 [4] - Colgate-Palmolive's sales are expected to grow by 3.9% this year, outpacing the industry average of 2.2% [4] Group 3: Earnings Estimate Revisions - There has been a positive trend in earnings estimate revisions for Colgate-Palmolive, with the Zacks Consensus Estimate for the current year increasing by 0.2% over the past month [5] Group 4: Overall Assessment - Colgate-Palmolive has achieved a Growth Score of A and holds a Zacks Rank of 2, indicating it is a solid choice for growth investors [6][7]

Economic Overview - U.S. stock markets experienced a strong rally in 2024, despite a setback in April, following an impressive performance in 2023 [1] - U.S. GDP growth for Q1 2024 was reported at 1.6%, below the consensus estimate of 2.5% [1] - The unemployment rate rose to 3.9% in April, the highest since January 2022, with job additions of 175,000 falling short of the 200,000 estimate [1] Consumer Sentiment and Retail Sales - Consumer sentiment dropped significantly, with the University of Michigan's final reading for May at 69.1%, down from 77.2% in April [2] - Retail sales remained flat month over month in April, missing the expected increase of 0.4%, with a year-over-year increase of 2.7% [2] - The consumer price index rose by 3.4% year over year in April, indicating that wage growth did not keep pace with inflation [2] Consumer Staples Sector - The consumer staples sector is characterized as mature and fundamentally strong, providing stability during economic fluctuations [4] - This sector is considered defensive, making it a preferred choice for investors seeking safety amid market volatility [4] Top Consumer Staples Picks - Colgate-Palmolive Co. (CL) expects net sales growth of 2-5% for 2024, with an earnings growth rate of 9.3% [6] - Tyson Foods Inc. (TSN) raised its adjusted operating income guidance for fiscal 2024, with an expected earnings growth rate of 91% [7] - McCormick & Company Inc. (MKC) anticipates a revenue growth rate of 0.3% and earnings growth of 5.6% for the current year [8] - PepsiCo Inc. (PEP) expects organic revenue growth of at least 4% for 2024, with earnings growth projected at 7.2% [9][10] - Freshpet Inc. (FRPT) has a remarkable expected revenue growth rate of 24.8% and earnings growth of over 100% for the current year [10]

Group 1: Investment Opportunities - Three quality stocks are highlighted for investors to watch, characterized by strong margins and competitive moats, with Wall Street analysts projecting double-digit upside [2] - Companies like Colgate-Palmolive and H&R Block are noted for their recession-proof products, while Copart, Ulta Beauty, and Altria Group represent a balance of stability and growth potential [2][3] Group 2: Financial Metrics for Value Investors - Key financial metrics for evaluating stocks include gross margins above 20%, return on invested capital (ROIC), and reasonable debt levels [3] - Ulta Beauty has a gross margin of 43% and a steady ROIC of 25%, with only 45% of its total capital comprising debt [5] - Copart boasts a gross margin of 47.3% and an average ROIC of 15.5% over the past five years, with only 1.5% of its capital in debt [7] - Altria Group shows a gross margin of 69.5% and a recent ROIC of 36.2%, with a five-year average of 32% [10] Group 3: Stock Performance and Analyst Insights - Ulta Beauty's shares are currently at $381.83, down 1.21% from previous levels, with a price target of $535.45 indicating a potential rally of 40.2% [5] - Copart's stock is trading at $54.93, with a price target of $51.00, reflecting strong institutional buying of $14.9 billion over the past year [7] - Altria's shares are at $46.35, with a price target of $56, suggesting a potential increase of 20.9% from current levels [10]

Core Insights - Colgate-Palmolive Company (CL) has seen a stock increase of 24.4% over the past six months, outperforming the industry average of 15.1% due to strong strategic efforts, pricing, and productivity initiatives [1] Group 1: Innovation and Product Strategy - Colgate's innovation strategy focuses on expanding into adjacent categories and enhancing its Oral Care portfolio through premium products, including CO. by Colgate and Colgate Elixir toothpaste [2] - The company is also expanding its Naturals and Therapeutics divisions and has acquired Hello Products LLC, contributing to its growth [2] Group 2: Financial Performance - Colgate has benefited from strong pricing strategies and productivity initiatives, resulting in a gross profit margin increase of 310 basis points to 60% [3] - In the first quarter, net sales rose by 6.2% year over year, with organic sales growth of 9.8%, driven by growth across all divisions and categories [4] - The company has raised its 2024 sales growth outlook to 2-5% from a previous estimate of 1-4%, and organic sales growth is now expected to be between 5-7% [4] Group 3: Shareholder Returns - Colgate is committed to shareholder returns through share buybacks and dividends, recently increasing its dividend to $2.00 per share from $1.92, maintaining uninterrupted dividends since 1895 [5]

Core Viewpoint - Growth investors are increasingly focused on stocks with above-average financial growth, and Colgate-Palmolive is highlighted as a strong candidate due to its favorable growth metrics and Zacks Rank [1][6][7] Earnings Growth - Colgate-Palmolive has a historical EPS growth rate of 2.1%, but projected EPS growth for this year is 9.3%, surpassing the industry average of 9.1% [3] Asset Utilization Ratio - The company's sales-to-total-assets (S/TA) ratio is 1.21, indicating that it generates $1.21 in sales for every dollar in assets, compared to the industry average of 0.95. Additionally, sales are expected to grow by 3.9% this year, while the industry average is 2.2% [4] Earnings Estimate Revisions - There have been upward revisions in current-year earnings estimates for Colgate-Palmolive, with the Zacks Consensus Estimate increasing by 1% over the past month, indicating positive momentum [5] Overall Assessment - Colgate-Palmolive has achieved a Growth Score of A and holds a Zacks Rank of 2, suggesting it is a solid choice for growth investors [6][7]

Economic Context and Consumer Behavior - The April jobs report indicated fewer employment opportunities added than expected, suggesting a disinflationary trend and fewer high-paying jobs in the labor market [1] - Consumers are showing caution in discretionary purchases, including health and personal care expenditures, amid a collective credit card debt load exceeding $1 trillion [1] - Cyclical ideas may suffer due to cautious consumer behavior, making consumer defensive stocks a safer investment option [1][2] Walmart (WMT) - Walmart is a practical choice for consumer defensive stocks due to its accessibility, convenient locations, and ability to meet demand outside of e-commerce [3] - The company consistently matches or exceeds quarterly earnings targets, with a 6.88% average positive earnings surprise in fiscal 2023 [3] - For the current fiscal year, analysts expect EPS of $2.36 on revenue of $637.49 billion, a solid improvement from last year's $2.22 EPS and $648.12 billion in sales [4] - Walmart offers a forward annual dividend yield of 1.37%, making it a decent defensive stock option [4] TJX Companies (TJX) - TJX Companies, focused on apparel retail, benefits from the competitive job market, as consumers seek affordable options for professional attire [5][6] - The company posted a 7.58% average positive earnings surprise in fiscal 2023 and is expected to continue steady progress [6] - Analysts project EPS of $4.10 on revenue of $56.28 billion for the current fiscal year, up from $3.86 EPS and $54.22 billion in sales last year [7] - TJX offers a forward dividend yield of 1.52% [7] Colgate-Palmolive (CL) - Colgate-Palmolive is a defensive stock due to its essential products in oral hygiene and home maintenance, which remain in demand regardless of economic conditions [8] - The company has a 4.7% average positive earnings surprise over the past four quarters [8] - For fiscal 2024, analysts expect EPS of $3.53 on revenue of $20.21 billion, up from $3.23 EPS and $19.46 billion in sales last year [9] - Colgate-Palmolive offers a forward dividend yield of 2.1% [9] Coca-Cola (KO) - Coca-Cola is a top consumer defensive stock due to its global brand recognition and affordability as a caffeine alternative [10][11] - The company has a 4.38% average positive earnings surprise over the past four quarters [11] - Analysts project EPS of $2.82 on revenue of $45.68 billion for the current fiscal year, with potential growth to $3.02 EPS and $47.89 billion in revenue next year [11] - Coca-Cola offers a forward dividend yield of 3.07% [12] McDonald's (MCD) - McDonald's is a defensive stock due to consistent demand for low-cost dining and its innovative drive-thru concept, CosMc's [13] - The company has a 5.93% average positive earnings surprise over the past four quarters, despite a slight miss in Q1 2024 [13] - Analysts expect EPS of $12.20 on revenue of $26.62 billion for fiscal 2024, up from $11.15 EPS and $23.82 billion in sales last year [14] - McDonald's offers a forward dividend yield of 2.43% [14] Five Below (FIVE) - Five Below attracts a wide customer base with its pricing flexibility, offering products up to $25 alongside its $1-$5 mainline portfolio [15][16] - The company has been volatile but delivered a 3.1% average positive earnings surprise in fiscal 2023, despite a Q4 miss [16] - Analysts project EPS of $6.04 on revenue of $4.04 billion for the current fiscal year [17] Philip Morris (PM) - Philip Morris is a controversial but potentially undervalued defensive stock, with consistent earnings performance and growth in alternative smoking products [18][19] - Analysts expect EPS of $6.29 on revenue of $36.94 billion for fiscal 2024, up from $6.01 EPS and $35.25 billion in sales last year [19] - The company offers a forward dividend yield of 5.22%, making it an attractive defensive stock [19]