The industry that is least affected by the pandemic is probably retail, especially the consumer products segment. The majority of consumer goods companies either witnessed an increase in demand during the COVID period or managed to stay resilient. In the case of Colgate-Palmolive Company (NYSE: CL), earnings topped expectations consistently last year when the overall economic activity was disrupted by the crisis.
Johnson & Johnson beats market estimates in Q4
The company’s stock, which maintained an uptrend last year, had an unimpressive start to 2021 and experienced weakness since then. Market watchers caution that the current trend might continue in the coming months, which makes the stock less attractive from an investment perspective. It makes sense to wait and watch at least until the next earnings release, before buying/selling CL. On the positive side, the company has raised dividends regularly over the years and the yield is above the industry average.
Demand Growth
Colgate’s personal care business is particularly benefiting from the spike in the demand for hygiene products like soaps and cleaners during the pandemic, mainly in the South Pacific region. With the COVID situation improving and markets returning to normal, especially after the vaccine rollout, there are concerns that the growth rate would decline in the remainder of the year. It needs to be noted that the company is operating in a highly competitive market where the likes of Johnson & Johnson (JNJ) enjoy significant market share.
From Colgate’s Q4 2020 earnings conference call:
“We finished 2020 in very strong fashion with our highest level of quarterly organic sales growth in over 10 years and our highest annual organic sales growth since the depths of the financial crisis. Importantly, we continue to deliver balanced growth, which we think is the key to sustainable strong performance. For both the quarter and the year, we delivered both volume and pricing growth, organic growth in all four of our categories: oral care, personal care, home care, and pet nutrition, and organic sales growth in every division with both emerging markets and developed markets performing well.”
Upbeat Q4
In the final months of fiscal 2020, earnings increased 5% annually to $0.77 per share, continuing the recent trend. It was driven by continued growth in the Personal and Home Care segment — the company’s core business — which was supported by a double-digit increase in Hill’s Pet Nutrition sales. Total sales grew 8% to about $4 billion, which was above the consensus forecast. However, there is uncertainty over the company’s ability to sustain the current momentum, given the high level of volatility in raw material and freight costs.
Focus on Innovation
Meanwhile, the management is continuing the strategy of investing in innovation and digital transformation to achieve long-term growth. Recent expansion initiatives, mainly acquisitions, boosted volume growth in the fourth quarter when margins benefited from favorable pricing that was partially offset by higher raw material costs. At the end of the period, the total operating cash flow was $3.7 billion, which should come in handy when it comes to growth initiatives.
Read management/analysts’ comments on quarterly results
Despite the impressive financial performance, Colgate’s stock entered 2021 on a dismal note and lost about 7% since the beginning of the year. The stock closed the last trading session slightly higher but remained volatile.