Dissecting This FMCG Giant – Colgate-Palmolive Company (CL): The Procter & Gamble Company (PG), Unilever N.V. (ADR) (UL)

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The recent devaluation of the Venezuelan currency, plus, an average fourth quarter aren’t good signs for Colgate-Palmolive Company (NYSE:CL). With strong competition from peers such as The Procter & Gamble Company (NYSE:PG) and Unilever N.V. (ADR) (NYSE:UL), the big question remains the same—what’s in store for the company in 2013?

Colgate-Palmolive Company (NYSE:CL)Devaluation of Venezuelan currency

Venezuela accounts for more than 5% of Colgate-Palmolive’s total revenue. Due to ongoing economic and labor issues in Venezuela, Colgate-Palmolive’s South American region hasn’t done that well lately. As a result of recent devaluation of Venezuelan Bolivar by 32%, Colgate-Palmolive Company (NYSE:CL) expects to report a one-time loss of $120 million, or $0.25 per share in 1Q13. The company’s earnings-per-share are estimated to fall by $0.05 to $0.07 in the quarter.

Quarterly earnings

In 4Q12, Colgate-Palmolive Company (NYSE:CL) reported earnings of $598 million or $1.26 per share, up from $590 million or $1.21 per share in the same quarter last year. Revenue grew 2.5% to $4.29 billion, missing analysts’ estimates of $4.31 billion. Prices were up 2.5%, while sales volume grew by 1.5%.

Organic sales grew by 4% in the recent quarter, compared to a growth of 5% and 8% in the third and second quarter respectively. Latin America, which constitutes about 29% of the company’s total sales, saw an organic sales growth of just 4% in the fourth quarter, compared to a 9% increase in the third and 14.5% increase in the fourth quarter of 2011. The chief reason behind this was a tough economic and labor environment in Venezuela, which had a negative effect on both sales and profits.

Forecast for 2013

In the next quarter, analysts expect Colgate-Palmolive to earn $1.32 per share on revenues of $4.3 billion. For the full year, the company is expected to earn $5.73 per share on $17.79 billion revenue.

Colgate-Palmolive Company (NYSE:CL) is trading at a forward P/E (1yr) of 18.25x, which shows that it’s an expensive buy in the fast-moving consumer goods (FMCG) sector. It has a PEG of 2.07 and a dividend yield of 2.20%. According to the sell side, it has a mean target price of $114, suggesting that it’s trading at its fair value and doesn’t have any upside potential at this stage. A mean recommendation of 2.8 on the sell side also shows that it isn’t an attractive buy.

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