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Why Colgate-Palmolive’s Q4 EPS Fell

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EPS beat estimates

Colgate-Palmolive (CL) posted adjusted earnings of $0.74, a fall of about 1% on a YoY (year-over-year) basis. However, fourth-quarter adjusted EPS came in ahead of analysts’ estimate of $0.73. Lower sales and margin headwinds dragged the company’s earnings down. However, a significant decline in the effective tax rate supported the bottom line.

In comparison, Procter & Gamble (PG) reported stronger-than-expected bottom line results, driven by a lower tax rate and share repurchases. Meanwhile, Kimberly-Clark’s (KMB) fourth-quarter EPS fell short of analysts’ estimates, reflecting increased commodity costs. We expect Clorox (CLX) and Church & Dwight’s (CHD) EPS to benefit from a lower effective tax rate. However, margin headwinds could remain a drag.

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Q4 earnings in detail

Colgate-Palmolive’s fourth-quarter adjusted EPS benefitted from a considerable decline in the tax rate. The fourth-quarter adjusted effective tax rate was 22.9%, compared to 29.9% during the prior-year period. However, margin headwinds pressured the bottom line.

Colgate-Palmolive’s adjusted gross profit margin contracted by 100 basis points to 59.4% as benefits from higher pricing and cost savings were more than offset by continued inflation in raw and packaging material costs.

Adjusted selling, general, and administrative and SG&A expenses increased by 70 basis points, driven by higher logistics costs and increased investments in advertising. A lower gross margin and higher SG&A expense rate took a toll on adjusted operating margins.

Outlook

Colgate-Palmolive’s management expects higher pricing and innovation to drive organic sales and, in turn, EPS. However, EPS are projected to remain low as an increase in raw material prices and a higher effective tax rate is likely to remain a drag.

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