Can Colgate-Palmolive’s Earnings Improve in 2018?



Near-term challenges

Colgate-Palmolive’s (CL) earnings have benefited in the past several quarters from its focus on productivity and cost-saving initiatives. However, the rate of growth remained low as adverse currency rates and a soft sales environment were still a drag. In the near term, increased raw material and packaging costs and a planned increase in advertising spending are anticipated to pressure its margins and, in turn, its earnings. A slowdown in the Middle East and growing competition from local players in China (FXI) and India could further restrict the company’s earnings growth rate.

Given the challenges, Colgate-Palmolive’s management projects its bottom line to increase in the low single digits in 2017, driven by a lower share count and productivity savings.

Will trends improve in 2018?

Analysts expect Colgate-Palmolive’s earnings to increase in the high single digits for 2018 as currency risk subsides and volume trends improve in the United States and Europe. Colgate-Palmolive’s sales are expected to rebound in 2018, driven by growth in emerging markets, especially Latin America, which could boost the company’s bottom-line growth rate.

Higher pricing in emerging markets and cost and productivity savings are further anticipated to drive the company’s EPS (earnings per share) in 2018. However, higher costs associated with inflation in commodities costs coupled with a rise in packaging costs could hurt the company’s earnings growth rate.

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