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Colgate-Palmolive’s Top Line Might Stay Low

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May. 24 2019, Published 8:56 a.m. ET

Currency volatility 

Colgate-Palmolive (CL) beat analysts’ sales estimate during the last reported quarter. However, the company’s net sales remained weak and continued to decline. Colgate-Palmolive’s top line marked a YoY (year-over-year) decline in the past three quarters. Negative foreign exchange rates and weakness in China had a negative impact on the company’s sales.

However, higher net price realization and improved volumes drove Colgate-Palmolive’s organic sales growth and supported the top line.

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We expect Colgate-Palmolive’s top line to continue to decline in the second quarter, which reflects currency volatility. However, net sales are expected to show a sequential and YoY improvement in the second half of 2019 and return to the growth path. The fiscal net sales growth is expected to stay low, which reflects the weakness in the first half of 2019.

Currency volatility and more competition continue to hurt peers’ top lines. However, higher net pricing and innovation are driving the base business. Procter & Gamble (PG), Kimberly-Clark (KMB), Church & Dwight (CHD), and Clorox (CLX) posted improved organic sales due to price restructuring and innovation-driven products.

Analysts’ estimates

Analysts expect Colgate-Palmolive’s net sales to decline slightly in the second quarter. The sales are expected to mark close to 3% growth in the second half of 2019. However, low sales in the first half of the year are expected to drag down the fiscal net sales growth, which is expected to show a marginal improvement on a YoY basis.

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