The Coca-Cola Company (KO), Mondelez International Inc (MDLZ), Colgate-Palmolive Company (CL): A Stronger Dollar Remains a Risk

As a leading consumer products company, Colgate-Palmolive Company (NYSE:CL) serves people in more than 200 countries. Given the large global footprint, more than three quarters of total revenues for Colgate-Palmolive are earned from international markets. The significant international market exposure is an important growth driver for Colgate-Palmolive Company (NYSE:CL); however, it also eats away a notable portion of total revenue growth due to foreign currency movements. In the second quarter, 3% of total revenues were erased due to foreign currency exposure. Colgate-Palmolive has been aiming to expand its international business, specifically targeting emerging markets to achieve growth. Other than international market expansion, Colgate-Palmolive Company (NYSE:CL) has been pushing margin expansion to grow its EPS. In 2Q 2013, Colgate-Palmolive was able to expand its operating profit by 3%.

A favorable geographical footprint and higher emerging markets’ margins in comparison to developed markets makes Colgate-Palmolive superior to its peers. Due to significant emerging market exposure and high growth prospects, Colgate-Palmolive Company (NYSE:CL) trades at premium valuations compared to the broad market. Colgate-Palmolive Company (NYSE:CL) has a forward P/E of 19x in comparison to the S&P’s forward P/E of 15x. Also, the company has higher operating margins in contrast to its peers, which can be used to reinvest and achieve growth and increase its market share. The following table displays the operating margin comparison between Colgate-Palmolive and its peers.

Source: Yahoo! Finance

Final words
Significant emerging market exposure is considered to be an advantage for consumer companies; however, the companies also have to face currency headwinds because of it. Hence, foreign exchange translation remains a risk for the above-mentioned companies, as large chunks of sales are coming from outside U.S. markets, negatively impacting the companies’ sales and earnings growth.

The article A Stronger Dollar Remains a Risk originally appeared on Fool.com and is written by Faizan Chudhry.

Faizan Chudhry has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola.

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