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Here's Why Colgate (CL) Deserves a Place in Your Portfolio

Zacks Equity Research

Colgate-Palmolive Company CL displayed significant growth over the years on the back of robust quarterly performances, which testify its smooth progress on the growth strategies. The company’s accelerated investments in brands, higher pricing and strong innovation along with expansion in new markets and channels are key drivers. Further, it is on track with its savings program.

Clearly, the stock of this consumer goods company has jumped 19.7% year to date, outperforming the industry’s growth of 12.5%. Moreover, this Zacks Rank #2 (Buy) stock has gained about 3.7% since reporting stellar first-quarter 2019 results on Apr 26. Notably, the company’s first quarter marked the second straight quarter of sales beat and the third positive earnings surprise in the last five quarters.

Factors Narrating Colgate’s Growth Potential

Innovation and expansion in new markets have been cornerstones of Colgate’s success over the years. The company’s innovation strategy is focused on growing in adjacent categories and product segments. In 2019, its innovation efforts will be marked by the re-launch of Colgate Total and Hill’s Science Diet as well as the continued expansion of the naturals range. This along with accelerated investments in brands and higher pricing is likely to aid the top line in 2019. Notably, the initial response to the re-launch of Hill’s Science Diet has been positive, with improved market share in the first quarter. The company expects to continue the re-launch across the globe through the first half of 2020.

Further, Colgate continues to expand Naturals toothpastes, based on local insights, with the launch of the charcoal range across many countries. In Latin America, the company’s Oral Care innovations bore fruit, with market share gains in Colgate Natural Extracts toothpaste line, Colgate Guard franchise in pharmacies in Brazil and the Colgate Slim Soft Advanced toothbrush. The Colgate Vedshakti line is witnessing market share gains in India. Additionally, the Naturals range is a key area of focus for the company in personal and home care categories.

Moreover, the company is keen on expanding the availability of products across markets by enhanced distribution to newer markets and channels. This has been driving robust organic sales growth for the past several quarters. Notably, organic sales improved 3% in the first quarter. Robust volume and favorable pricing aided organic sales growth in the quarter.

The company is aggressively expanding into faster growth channels while extending the geographic footprint of its brands. In 2019, it plans to expand the portfolio by introducing pharmacy brands like Elmex and Meridol to newer markets. It is also likely to increase investments in professional skin care businesses — Elta MD and PCA Skin — in spas and dermatologists.

Additionally, it is expanding e-commerce offerings, with the launch of Hill’s to home, which significantly exceeded subscription targets in the first quarter. This platform will enable pet parents to purchase prescription diet products directly from their veterinarian, with home delivery option. This should enable it to deliver strong e-commerce growth in 2019. All these actions are likely to drive solid top-line growth in 2019.

Additionally, Colgate’s savings program — Global Growth and Efficiency Program or 2012 Restructuring Program and the Funding the Growth undertakings — are delivering impressive results. The company expects after-tax savings from the Global Growth and Efficiency Program of $500-$575 million. The projected savings target a three to four-year average cash payback, with an after-tax rate of return above 30%.

By funding the growth initiative, the company aims at opening environmentally sustainable distribution centers to offer better service to its customers while also reducing fuel and transportation costs. These programs are expected to contribute significantly toward the improvement of gross and operating margins over the long term.

Wrapping Up

Clearly, this New York City-based company has significant momentum left, driven by growth efforts and strong position in the market. This view is further supported by its impressive long-term earnings growth rate of 5.4%.

Other Top-Ranked Stocks in the Consumer Staples Space

Unilever Plc UL has an expected long-term earnings growth rate of 6.4%. Moreover, it currently has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PepsiCo Inc. PEP, also a Zacks Rank #2 stock, has an expected long term earnings growth rate of 7%.

General Mills, Inc. GIS carries a Zacks Rank #2 at present and has expected long-term earnings growth rate of 7%.

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