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Is Colgate-Palmolive for Sale? Stock Rose Due to Rumors

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Is Colgate-Palmolive for Sale? Stock Rose Due to Rumors PART 2 OF 3

Why Colgate-Palmolive Might Sell Itself

Struggle to grow

As we discussed earlier, consumer product companies have been struggling to grow sales in North America (their biggest market) due to lower demand. Challenges in major international markets and a strong US (SPY) dollar are making things worse.

As the following graph shows, Colgate-Palmolive’s (CL) sales are trending down. There was a stronger-than-expected sales decline in the US due to retailers reducing their inventory. Inventories are being reduced due to moderating demand and continued softness in Europe and China. Also, negative currency fluctuations are restricting sales growth.

Why Colgate-Palmolive Might Sell Itself

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The story isn’t any different for Colgate-Palmolive’s peers. Kimberly-Clark’s (KMB1Q17 top line remained flat at $4.5 billion. However, organic sales fell 1.0% despite a rise in volume. Meanwhile, Procter & Gamble (PG) reported its fiscal 3Q17 numbers last month. It posted a decline in sales, which reflected a slowdown in consumer uptake and sluggish demand in the domestic market.

Outlook isn’t different

Earlier, Colgate-Palmolive’s management expected organic sales to rise 4%–7% for 2017. Meanwhile, category growth was projected to be 2% in North America and 5% in emerging markets. Category growth was expected to remain flat in Europe. However, the company lowered its outlook following the soft start to the current year. Now, it expects organic sales to be modestly below its projected growth range, while category growth in North America is forecast to be at the lower end of the 1%–2% range.

If we break down the company’s sales, Colgate-Palmolive is struggling in developed markets. In the US, volume declines and lower pricing due to retailers’ inventory cutback and category deceleration are having a negative impact on the company’s top line. Meanwhile, a strong US dollar is restricting sales growth in Europe.

Amid sluggish growth in developed economies, emerging markets are a relief for the company. However, India and China are still a drag. Destocking by retailers in China due to consumers’ shift towards e-commerce is a taking a toll on the company’s performance. Meanwhile, the impact after demonetization in India led to lower volumes.

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