Earnings preview: Higher costs likely to dampen Colgate-Palmolive’s Q2 results

Colgate-Palmolive Company (NYSE: CL) is scheduled to report second quarter 2019 earnings results on Friday, July 26, before market open. The consensus estimate is for earnings of $0.72 per share on revenues of $3.87 billion. In the trailing four quarters, the company has surpassed earnings estimates twice.

Analysts expect revenue and earnings to decline year-over-year in the second quarter. Higher raw material and advertising costs along with negative impacts from foreign exchange are likely to hurt sales and in turn weigh on margins and profitability.

Although Colgate-Palmolive faces competitive pressures in the US, the company is likely to benefit from its strong portfolio of products. Favorable pricing and mix could drive growth in organic sales which in turn could help earnings. Some analysts anticipate the company’s performance to pick up during the remainder of this year.

In order to focus on the oral care, personal care and pet nutrition businesses, which yield higher margins, and to expand its portfolio in skin care, Colgate decided to acquire the Filorga Skin Care Business for approx. $1.69 billion. The deal is anticipated to close in the third quarter of 2019 and is not expected to have any impact on diluted EPS in 2019.

In the first quarter of 2019, Colgate-Palmolive topped earnings estimates despite a 9% drop in adjusted EPS to $0.67. Net sales fell 3% to $3.8 billion while organic sales rose 3%. Sales fell in the Oral, Personal and Home Care segment while the pet nutrition business posted single-digit growth. On a geographic basis, sales grew in North America but declined in all other regions.

For the full year of 2019, Colgate has guided for net sales to be flat to up low single digits, with organic sales growth of 2-4%. GAAP EPS is expected to decline in low single digits while adjusted EPS is expected to decrease in the mid-single-digit range.

Colgate-Palmolive’s shares have risen 20% so far this year and 3% over the past three months. According to TipRanks, the majority of analysts have rated the stock as Hold and the average 1-year price target is $74.29.

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