The brands manufactured by Colgate-Palmolive (NYSE: CL) such as its Irish Spring soap and Palmolive dishwashing detergent resonate well with shoppers, especially ones living outside of the U.S.
The consumer brands maker reported third quarter net revenue of $5.37 billion, up 4.6% from the previous year. Revenue rose internationally, but declined in North America by 1.7% as shoppers faced economic pressures such as higher interest rates and gasoline prices. Colgate generated 3.6% organic sales growth due to higher volumes and prices while its adjusted gross margin expanded by 0.9% to 60.3% due to pricing and efficiency gains.
Colgate-Palmolive reported its fourth consecutive quarter of volume growth that increased by 1.7%. The manufacturer spent more money for raw materials such as shipping and packaging, but raised prices 2% to offset those costs. Free cash flow rose by 7% while the company’s profit rose to $751 million, compared to $735 million a year ago.
“Our strong results were broad-based with organic sales growth in all four of our categories and four of our five divisions,” CEO Noel Wallace said during an earnings call. “We delivered solid gross margin expansion in a challenging cost environment.”
Revenue growth was led by emerging markets in the second quarter. Growth was driven by Brazil, China and India, plus “strong contributions from our European markets, where science-based premium innovation and our omni-channel demand generation model have led to record market shares,” he added.
Latin America makes up 25% of the company’s revenue while Europe, the Middle East and Africa’s business consists of 21% of sales. North America consists of 17% of revenue while Asia’s sales make up 15%.
The company’s pet food business, Hill’s Pet Nutrition, which consists of 22% of Colgate-Palmolive’s business also reported a strong quarter across both therapeutic and wellness businesses rising by 5.6%.
The household goods company continues to perform well in selling toothpaste with global market share at 41.4% year-to-date and its manual toothbrushes have global market share at 33.1% year-to-date.
“We are pleased with our global momentum, but remain focused on executing our U.S. turnaround,” Wallace said. “The U.S. market backdrop remains challenging. Consumer behavior is volatile and sentiment is weak given increasing fuel prices. Overall, categories remain under pressure.”
Shares of Colgate-Palmolive rose by 29% during the past year.
Consumers have stuck with Colgate-Palmolive’s brands for personal care, cleaning supplies and pet food instead of choosing to buy cheaper generic brands, wrote Erin Lash, a sector director of consumer equity research for Morningstar.
“Even in the face of cost pressures, Colgate has remained resolute in investing in its brand portfolio,” she wrote. “We believe this spending is preventing material consumer trade-down to private label.”
New products to attract consumers
The company is focused on investing in brand new products that are higher end and its current brands such as its toothpaste to remain competitive and improve revenue for its U.S. business, Wallace added.
“We have seen market share improvements in toothpaste, but remain focused on driving the long-term reset, which starts with scaling premium innovation while reinforcing our core brands,” he said. “We plan to increase both the pace and impact of innovation, with a pipeline focused on premium opportunities that can grow at scale.”
Colgate-Palmolive also plans to increase its use of artificial intelligence and data analytics to help the company market its products via digital and social media channels.
The company now is able to bring products to stores within six months to 12 months, down from 18 months to 36 months historically, generating higher sales, wrote Lash.
“The prudence of this course has been evident, as Colgate chalked up 24 consecutive quarters at or above its 3% to 5% long-term organic sales growth target through the end of 2024,” she said. “We believe this reflects the firm’s focus on consumer-valued innovation across price tiers and elevated brand spending.”
The company shrunk its full-year net sales outlook to 4% to 5% growth, compared with a prior estimate of 2% to 6% growth. Management forecasts a “very stubborn cost environment” to continue into early 2027, Wallace said. “What we’re focused on are the levers we can control and executing our strategy in an environment where costs are clearly elevated.”
The maker of Softsoap, Tom’s of Maine toothpaste and Ajax cleaning products, Colgate-Palmolive is poised for additional growth as it launches more products to sell to consumers.
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