Tag: earnings

Current price: $73.7 Price target: $77
Position size: 1.56% 1 year performance: +7%

Key Takeaways:

Colgate’s 4Q19 organic sales growth of 5% beat the 3% consensus expectation (+1.5% pricing and +3.5% volume). Asia Pacific and Latin America both grew 6.5%, while Europe was the lowest at 0.5% growth. In China, Colgate repositioned its products to compete more effectively against premium local brands that had been taking shares from Colgate. It looks like this worked as volume growth returned. Regarding the Coronavirus, Colgate expects a negative impact on its Chinese activity although it is hard to quantify it at this time. Colgate Total relaunch was a success as well, except in the US where P&G is a strong competitor. Its pet’s nutrition business grew 8.5% organically, although that category has shown high growth, so Colgate is not necessarily gaining market share. Gross margins increased 74bps (vs. consensus +40bps), however operating margins contracted 120bps due to higher expenses. [more]

Colgate provided its initial 2020 outlook:
• +3-5% organic sales growth (+4-6% total sales growth)
• Gross margin expansion
• Advertising expenses higher
• EPS growth low to mid-single digits
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]

Key Takeaways:

Current price: $160 Price target: $168 (NEW)
Position size: 3.3% 1-year performance: +74%

Resmed reported another quarter of impressive sales growth (+14% ex-FX). Gross margins expanded 50bps on a comparable basis, thanks to product mix (more masks) and production efficiencies. Their software-as-a-business (SaaS) business slowed down from 83% in 1Q20 to 37% in 2Q20 as prior year’s acquisitions are becoming organic (in the high single digits (HSD)). The company will spend more towards its MatrixCare SaaS business in the coming quarters in an effort to boosts sales (just as they did with Brightree). [more]
To explain their continued growth trajectory, the management team talked about their masks business and innovation as a way to fill a void in their category coverage instead of replacing older versions of the product. This helps the company gain market share globally in a market that is growing in the HSD rate. The company also partners with multiple players (with the Propeller Health platform) to build a relationship with COPD patients in stage 1 and 2 (when a machine is not yet needed), so that once they move into stage 3 and 4 of the disease development (COPD is a progressive disease), the patient is already familiar with Resmed’s offerings. RMD is enrolled in a trial with Novartis to determine of the Propeller app can help deliver better outcomes in treating COPD.
Resmed announced another small acquisition with Snapworx, which will support Brightree, thanks to its AI-driven private software to provide patient contact management and workflow optimization for their re-supply market.
The Coronavirus is expected to have mixed impact for them in China: more demand for ventilator but less for sleep treatments.
We increased our price target to account for sustainable high growth supported by innovation and bolt-on M&A.

Thesis on RMD:
• Leading position in the underpenetrated sleep apnea space
• Duopoly market
• New product cycle
• Returns of capital to increase: ~1% share buyback/year (back in FY18), dividend yield of 2%

$RMD.US

[category earnings]

[category equity research] [tag RMD]