Under new management, the firm plans to introduce changes to power its top and bottom lines. Productivity improvements and cost-savings initiatives – which are already in place – should drive margins up again. Plus, The Procter & Gamble Company (NYSE:PG) will focus on better understanding its customers in the emerging markets. Unilever did a better job by driving higher margin products in these countries. The company will have to as well, providing that just focusing on premium products and the U.S. consumer does not cut it.
Best in class consumer goods company
Colgate-Palmolive Company (NYSE:CL) sells oral, personal, home care and pet nutrition consumer products in over 200 countries.
The company announced its first-quarter earnings of $1.32 per share, which showed a 6% increase year over year. Global sales grew 2.7% to $4.31 billion. Cost containment efforts and increased prices gave a 40 bps expansion in adjusted gross profit margin and a 20 bps increase in adjusted operating margins, which reached 22.8%.
Colgate-Palmolive Company (NYSE:CL) has a vast geographic reach. Its toothpaste accounts for 46% of the global market share, and it claims to have even greater market share in the emerging markets. Even though it is hard to accurately measure it due to lack of infrastructure, the company’s presence in these markets is impressive.
In order to maintain this leading position and augment unit volume growth, the company initiated a four-year “Global Growth and Efficiency Program.” This program will generate annual cost savings in the range of $365-$435 million, including a 6% reduction in the workforce (2,300 individuals approximately) by the end of 2016.
Having dominance in the oral care category involves continuous spending. Competitive pressure from Procter & Gamble and local brands is even worse in overseas markets, where Colgate-Palmolive Company (NYSE:CL) has to deal with currency headwinds as well. Even though, the company has outstanding market share in these countries, this share could reach a ceiling, limiting future returns.
Unilever N.V. (ADR) (NYSE:UN) is a strong company and its efforts to remain a leader are paying off. It is a safe investment to consider. Procter & Gamble is a different story. The company will have to show better results from its turnaround efforts, and pay special attention to monitoring its performance in the emerging markets. If the company does not show any improvement on those sides going forward, I would not invest in it. On the other hand, I believe Colgate-Palmolive Company (NYSE:CL)’s long-term objectives will be achieved. The company’s fundamental capabilities for improving its top and bottom line make me think the company will be able to keep on hitting home-runs. I support its management decisions and would remain long in this stock.
Vanina Egea has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble.
The article Consumer Goods Companies: Great Expectations originally appeared on Fool.com.
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