Key Takeaways:
Current price: $78 Price target: $84 (from $82)
Position size: 1.68% 1 year performance: +12%
- Overall great quarter, showing strategy of innovation & premium products is a positive for sales and margins
- Organic sales +7.5%!! above consensus of 3.9%
- EM sales +8.5% – led by Latam +11.5%
- Developed markets: +6.5%
- Hill’s pet nutrition +11%
- Market share improvement
- Gross margin increased 220bps, operating margin up 120bps
- Innovation strategy to lift pricing & top line growth through premium rather than promotions is positive impact to margins
- 2020 guidance updated:
- Top line growth + mid-single-digits (organic sale at the high end of MSD)
- Gross margin expansion
- EPS $3.00-$3.03 (consensus $2.97)
- Debt down payment and share repurchase to continue in 4Q
- We are upgrading our price target slightly to account for better profitability
The Thesis on Colgate
- High exposure to fast growing emerging markets (36% of Operating Profit from Latin America; 50%+ from EM)
- Defensive Product set (soap and toothpaste). Product line less vulnerable to trade downs due to low private label exposure in the categories
- Strong balance sheet (net debt/ebitda 1.4x) and highest ROIC in the sector
- 2.64% dividend yield
$CL.US [tag CL] [category earnings]
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109