Key Takeaways:
Current price: $78.9 Price target: $94 (New down from $96)
Position size: 1.5% 1 year performance: +15%
Colgate released its 4Q2020 earnings this morning. Overall the company published another quarter of high sales level, with positive comments for the first part of 2021, while 2H21 should see some moderation from the vaccine rollout.
- Colgate finished the year with the highest revenue growth rate since 2008, helped by the continued shift in consumer behavior due to the pandemic (more cleaning product and personal hygiene sales, and more pets at home), and the new strategy put in place by the new CEO
- Organic sales +8.5% – bringing overall 2020 sales growth to +7%
- EM sales +8.5% – led by Latin America +10.5%, similar to last quarter
- Developed markets: +9%, and increase from last quarter’s +6.5%
- Hill’s pet nutrition +14.5%
- Market share gain (including online)
- Operating margin impacted by increased advertising expenses (-100bps)
- FCF increased 18% y/y
- 2021 guidance initiated:
- Top line growth to moderate from 2020 levels, and be between 4-7% and organic sales to be 3-5% (in line with its long term target)
- Gross margin expansion (no exact range given)
- EPS growth lmid-single to high-single digits growth
- Capital allocation plans: debt paydown and share repurchase
- We are reducing our price target slightly as we roll over our model to 2021 and assume 2020/1H21 higher level of sales will not continue in out years
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