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What Drove Colgate-Palmolive’s Margins Growth in 1Q17?

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Dec. 4 2020, Updated 10:53 a.m. ET

Margins expanded

Colgate-Palmolive (CL) witnessed improved margins in 1Q17 despite soft sales thanks to its “Funding the Growth” initiative aimed at reducing costs and driving efficiency. The company’s adjusted gross margin improved about 70 basis points to 60.7% in 1Q17 driven by cost-cutting measures, partially offset by higher raw and packaging material costs.

In comparison, Kimberly-Clark’s (KMB) gross margin expanded 23 basis points during 1Q17. Meanwhile, Procter & Gamble’s (PG) adjusted gross margin contracted 40 basis points in fiscal 3Q17 due to increased input cost.

Colgate-Palmolive’s SG&A (selling, general, and administrative) expenses as a percentage of sales increased 30 basis points on account of higher overhead costs. However, adjusted operating margin expanded 20 basis points to 24.7% in 1Q17 driven by higher gross margin.

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Outlook

As higher sales remain elusive, companies operating in this space are focusing on lowering costs and generating productivity savings to boost margins. Despite the slow growth environment, Colgate-Palmolive remains upbeat and expects to generate strong margins in coming quarters driven by its cost savings program and higher pricing. The company reiterated its guidance and stated that it expects gross margins to expand at the high end of its projected range of 75–125 basis points in 2017. However, adverse currency fluctuations, moderating category growth in the US, and increased raw and packaging material costs are likely to remain a drag.

ETF investors seeking exposure to Colgate-Palmolive might consider ETFs such as the Consumer Staples Select Sector SPDR Fund (XLP), which invests 3.4% of its portfolio in the company.

Continue to the next part for a close look at CL’s analyst recommendations.

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