uploads/2015/07/CL-capex1.jpg

Why Is Colgate Increasing Its Capital Expenditure?

By

Updated

Capital expenditure analysis

Colgate (CL) has a broad-based business in household and personal care products. Colgate’s capital expenditure for 2014 was $0.8 billion, ~13% higher than in 2013.

Colgate expects capital expenditure to come in at ~4.5% of net sales in 2015. This is higher than the historical rate of ~3.5%, primarily as a result of the expansion of its 2012 restructuring program. In 4Q12, Colgate began a four-year global growth and efficiency program for sustained growth. This was expanded in the fourth quarter of 2014 to take advantage of additional savings opportunities.

Article continues below advertisement

Increase in capital expenditures

Colgate’s capital expenditure as a percentage of net sales rose to 4.4% in 2014 from 3.9% in 2013. Colgate as well as competitors Procter & Gamble (PG), Clorox (CLX), and Unilever (UL) make capital spending decisions primarily to support growth plans, capacity expansions, and innovation. Capex plans are also directed towards cost controls that deliver future cash savings.

Regional capex rise

The company’s total oral, personal, and home care capital spending accounted for $0.6 billion. This was primarily due to an increase in spending in geographies like Greater Asia/Africa and North America with $0.2 billion and $0.1 billion in 2014, respectively.

The rise in capital expenditure in these regions was due to expansion of commercial hubs and optimization of global supply chain and facilities. Colgate’s moves will help the company to optimize manufacturing processes, global warehouse networks, and office locations for greater productivity and lower costs. Plus, these moves will increase the company’s speed in bringing innovations to the market.

The iShares S&P 500 ETF (IVV) provides exposure to Colgate and Kimberly-Clark (KMB) with a combined portfolio weight of 0.5%[1. Updated as on July 15, 2015].

Advertisement

More From Market Realist