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Colgate-Palmolive Co CL

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Colgate Plants More Ad Spend as It Strives to Harvest Sales Gains Post-COVID-19; Shares a Bit Rich

Erin Lash, CFA Sector Director

Analyst Note

| Erin Lash, CFA |

There was a lot to like in wide-moat Colgate’s third-quarter results. Organic sales popped 7.5% (reflecting a balanced contribution from increased volumes--3% benefit--and higher prices--up 4.5%), gross margins swelled 220 basis points to 61.2% (the highest quarterly point in more than a decade), and adjusted operating margins rose 120 basis points to 24.1%. Although a portion of these gains likely manifested from consumers’ heightened penchant for personal and home cleaning fare, we don’t think oral care has necessarily been a beneficiary of these trends. Rather, we surmise that the firm’s renewed focus on consumer-valued innovation (even that which comes with a higher price) is also playing a hand. Encouragingly, management isn’t letting these products foster on their own but is cultivating its fare with elevated brand spend (which was up 12.5% over the year-ago period to 11.5% of sales in the quarter). And we don’t expect Colgate to pullback on these efforts, as we forecast it will expend around 12% of sales (or more than $2 billion) annually on research, development, and marketing over the course of our explicit forecast, which we view as a prudent means to support is competitive prowess.

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Company Profile

Business Description

Since its founding in 1806, Colgate-Palmolive has grown to become a leading global consumer product company. In addition to its namesake oral care line, the firm manufactures shampoos, shower gels, deodorants, and home care products that are sold in over 200 countries around the world (international sales account for about 70% of its consolidated total, including approximately 50% from emerging regions). It also owns specialty pet food maker Hill's, which sells its products through veterinarians and specialty pet retailers.

300 Park Avenue
New York, NY, 10022-7499
T +1 212 310-2000
Sector Consumer Defensive
Industry Household & Personal Products
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type Slow Growth
Employees 34,300