Household Products

Colgate-Palmolive expects profit to decline in 2019

Key Points
  • Colgate-Palmolive forecast a surprise drop in 2019 profit on Friday, blaming higher raw material costs and a stronger dollar, sending its shares down 3 percent.
  • Net sales fell to $3.81 billion from $3.89 billion, beating analysts' average estimate of $3.77 billion.
  • The company benefited from higher demand for its products in North America, its second biggest market.
An employee arranges Colgate-Palmolive's Colgate brand toothpaste.
Dhiraj Singh | Bloomberg | Getty Images

Colgate-Palmolive forecast a surprise drop in 2019 profit on Friday, blaming higher raw material costs and a stronger dollar, sending its shares down 3 percent.

Like other consumer goods companies, the world's largest toothpaste maker has struggled with rising commodity and transportation costs, forcing it to raise prices in regions like Latin America, where it makes the bulk of its revenue.

Higher prices crimped demand, especially in Brazil and Argentina, where Colgate faces stiff competition from Procter & Gamble's Oral-B and Unilever's Close Up.

To keep its market share, the company said it would spend more on advertising in fiscal 2019, but expects that, along with higher raw material costs and fluctuating foreign exchange rates, to lead to a mid-single-digit decline in earnings per share for the year.

Analysts were expecting a 2.4 percent rise in earnings per share for the year, according to IBES data from Refinitiv.

"Our outlook reflects an increase in raw material prices, an increase in our tax rate year-over-year and the uncertainty surrounding the global economy, exchange rates and pricing," Chief Executive Officer Ian Cook said in a statement.

Even in North America, where Colgate recorded strong fourth-quarter sales, economists have predicted that a consumer boom - set off by tax cuts, rising incomes and buoyant stock markets - could be fading due to a U.S. government shutdown, higher interest rates and trade tensions. The company, which boasts of a 42 percent share of the global toothpaste market, expects net sales for 2019 to be flat to up low-single digits, compared with analysts expectations of a 0.1 percent fall.

For the fourth quarter, Colgate reported an adjusted net income of $638 million, down 3 percent from a year earlier. On a per-share basis, it earned 74 cents, beating analysts' estimates of 73 cents.

Net sales in three months ended Dec. 31 fell 2.1 percent to $3.81 billion, but beat estimates of $3.77 billion, according to Refinitiv's IBES. Shares of the company were set to open down 2.7 percent to $60.50 in early trading, adding to a 19 percent decline its stock has seen over the past 52 weeks.

Next Article

Meet the most hated stocks in the market today: Consumer staples

Key Points
  • Shares of Campbell Soup, General Mills, Kraft Heinz, Procter & Gamble, Colgate-Palmolive and Clorox are down between 17 and 30 percent year to date, compared with a slight gain for the S&P 500.
  • Operating pressures like rising commodity costs are hurting profits, while rising bond yields are making the companies' once-coveted dividend payouts less interesting to investors.
  • P&G, Colgate and Clorox were last this cheap on a relative basis to the market seven to nine years ago.