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Why Colgate-Palmolive’s EPS Could Mark a Double-Digit Fall

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Apr. 22 2019, Published 9:40 a.m. ET

Consensus estimate

Colgate-Palmolive’s (CL) bottom line has stayed low and registered YoY (year-over-year) falls for the past two consecutive quarters despite a decrease in the effective tax rate. Soft sales and input cost headwinds have continued to more than offset the benefits of its higher pricing and cost savings, dragging its earnings down.

We expect cost headwinds to continue to play spoilsport and hurt Colgate-Palmolive’s first-quarter earnings. Analysts expect Colgate-Palmolive to post adjusted EPS of $0.66 in the first quarter of 2019, which implies a YoY fall of 10.8%.

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Factors to hurt CL’s bottom line

Analysts’ projection for the first quarter implies a double-digit fall in Colgate-Palmolive’s bottom line. We expect continued inflation in raw materials and packaging costs to take a toll on its profit margins and, in turn, its EPS. A planned increase in advertising and higher logistics costs are also likely to drag its earnings down.

Colgate-Palmolive faces tough YoY comparisons in the first quarter, which is likely to limit its earnings. Its bottom line rose 10.4% in the first quarter of 2018 thanks to the lower effective tax rate.

In comparison, higher raw materials and packaging costs coupled with a rise in logistics costs are expected to hurt the profit margins of Procter & Gamble (PG), Kimberly-Clark (KMB), the Clorox Company (CLX), and Church & Dwight (CHD). Lower margins and adverse currency rates are expected to hurt the earnings of these household and personal care product manufacturers.

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