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Colgate-Palmolive’s Earnings Might Be Subdued

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Currency and cost headwinds 

Colgate-Palmolive’s (CL) adjusted earnings remained weak in the past three quarters. The company beat analysts’ EPS expectation during the last reported quarter due to improved organic sales, cost-savings, and a lower effective tax rate. However, the adjusted EPS marked a high-single-digit decline.

We expect persisting margin headwinds and currency volatility to continue to hurt Colgate-Palmolive’s earnings in 2019. Inflation in packaging and raw material costs will likely offset the benefits from higher pricing and cost-savings and drag the company’s margins and EPS down. Negative currency rates and increased advertising investments could pressure the company’s earnings.

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Higher input and logistics costs, negative currency rates, the higher effective tax rate, and a more competitive environment are impacting other significant household and personal care product manufacturers’ bottom lines. Kimberly-Clark’s (KMB) bottom line fell during the last reported quarter, which reflected a higher effective tax rate and cost headwinds. Procter & Gamble (PG), Church & Dwight (CHD), and Clorox (CLX) posted an improved adjusted EPS. However, lower margins remained a drag.

Analysts’ estimates

Analysts expect Colgate-Palmolive’s adjusted earnings to fall 6% in the second quarter. The fiscal EPS is projected to mark a mid-single-digit decline. Higher raw material and packaging costs, planned investments in advertising, and little or no benefits from the tax rate are expected to hurt Colgate-Palmolive’s bottom line.

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