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What to Expect from Colgate-Palmolive’s 2Q17 Earnings

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Part 4
What to Expect from Colgate-Palmolive’s 2Q17 Earnings PART 4 OF 6

Colgate-Palmolive’s Volumes to Remain Soft in Emerging Markets

Latin America remains key

Colgate-Palmolive’s (CL) financials have been driven by its strong performance in emerging markets, mainly Latin America. The company remains a dominant player in Latin America, which has helped it restructure pricing, thereby driving overall sales growth. However, the company’s policy to offset adverse currency movements through higher pricing is negatively impacting its volumes. As the graph below shows, its organic sales fell sequentially due to lower volumes.

Colgate-Palmolive&#8217;s Volumes to Remain Soft in Emerging Markets

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Most of that growth was driven by higher pricing as volumes improved at a slower rate. That’s not a good sign since its strategy might backfire. The company’s market-leading position in several Latin American countries, including Mexico, Puerto Rico, Peru, Paraguay, and the Dominican Republic, is expected to drive sales. However, macroeconomic concerns in Brazil and a strong US (SPY) (SPX-INDEX) dollar are expected to remain a drag.

Asia-Pacific to remain a challenge

Lower volumes in India and China (FXI) are affecting Colgate-Palmolive’s sales in the APAC (Asia-Pacific) region. Increased competition from homegrown brands in India and inventory reduction by retailers in China are expected to hurt the company’s organic sales in the region. Declining volumes in Thailand are putting further pressure on the company’s top-line performance.

What to expect from Africa-Eurasia

Similar to Latin America, Colgate-Palmolive’s net sales in the Africa-Eurasia region are driven by higher pricing as volumes continue to slide, despite the company’s market-leading position. Currency tailwinds also helped the company report a YoY (year-over-year) increase in sales. The company is witnessing improved volume trends in North Africa and the Middle East. However, a steep decline in volumes in Russia and the Sub-Saharan Africa region is expected to remain a drag.

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