Colgate Earnings: Judicious Brand Spending Lifts Sales and Margins; Shares Not a Bargain

Macro and geopolitical turmoil has failed to deter wide-moat Colgate, as evidenced by the whopping 10% organic sales growth posted in its first quarter, which came on top of similar marks a year ago. We attribute this performance to Colgate’s unwavering commitment to invest in consumer-valued innovation across price tiers supported by robust marketing spending, up 16% in the quarter to more than 13% of sales (versus an 11.5% average over the past five years). We don’t think the firm will veer from this course, with our forecast calling for 13% of sales to be directed toward research, development, and marketing annually on average. From our vantage point, this spending is essential in increasing the appeal of its brands with retailers and consumers. And the fruits of these efforts have manifest in building market share positions, with its global hold on the toothpaste and toothbrush categories now at 41.3% and 31.7%, respectively, each up 110 basis points versus last year.