Colgate Advances 13% in a Year: To Buy or Not to Buy the Stock?

Stock Performance - Colgate-Palmolive Company (CL) shares appreciated 13.1% in the trailing 12 months, outperforming the Zacks Consumer Products – Staples industry's rise of 6% and the broader Zacks Consumer Staples sector's return of 0.2% [1] - The upswing was driven by strong pricing, funding-the-growth initiatives, and solid business momentum, leading to robust performance in Q3 2024 [3] Financial Metrics - Adjusted gross margin rose to 61.3% and adjusted operating profit margin increased to 21.5% in Q3 2024 [4] - Year-over-year earnings per share growth was achieved, driven by higher gross margins and improved pricing across all divisions except North America [5] - Organic sales growth was bolstered by increased volume and pricing, with every operating division reporting volume growth for the second consecutive quarter [5] Strategic Initiatives - The company's strategy of combining core and premium innovation with increased advertising investment and enhanced capabilities is driving brand strength and expanding household penetration [6] - Successful product launches include CO by Colgate, Colgate Elixir toothpaste, and Colgate enzyme whitening toothpaste [6] Outlook and Guidance - Management forecasts gross profit margin expansion on both GAAP and adjusted bases, driven by pricing gains and revenue-growth management initiatives [7] - Base Business's EPS is expected to increase 10-11% in 2024, with GAAP EPS rising by double digits [7] - Net sales growth is anticipated at 3-5%, with organic sales growth expected at 7-8% for 2024 [8] - Currency translations are expected to have a mid-single-digit negative impact on sales [8] Revised Estimates - The Zacks Consensus Estimate for CL's fiscal 2024 earnings has remained unchanged in the past 30 days [9] - For 2024, sales and EPS are expected to grow 3.9% and 11.2% year-over-year, respectively [9] - For 2025, sales and earnings are expected to grow 3.1% and 6.7% year-over-year, respectively [9] Challenges - The company faces macroeconomic instability and foreign currency headwinds [10] - Persistent inflation in raw materials and packaging costs has negatively impacted profitability [10] - North America's net sales dipped 1.9% year-over-year on an organic basis, with a 3.2% decrease in pricing offset by a 1.2% increase in volume [11] - Latin America's net sales fell 3.2% year-over-year due to unfavorable currency impacts [11] - Foreign currency fluctuations reduced total sales growth by 4.4% in Q3, with significant effects from Argentina and the Africa/Eurasia division [12] Final Thoughts - CL's robust pricing strategies, productivity initiatives, and innovations make the stock attractive for long-term investors [13] - Continuing challenges like macroeconomic instability and foreign currency headwinds act as deterrents, suggesting current investors retain their positions while new investors wait for a more favorable entry point [14]