Colgate-Palmolive Company (NYSE:CL) manufactures and sells toothpaste, personal care products, household cleaners, and pet nutrition worldwide. Regular replenishment generates recurring sales through retailers, online channels, and veterinary practices. Oral care and pet nutrition accounted for roughly two-thirds of 2025 revenue. The company was also included in Insider Monkey’s list of 10 Best Dividend Kings To Buy According to Hedge Funds.
Hill’s is replacing discontinued production for retailers’ pet-food brands with its own branded nutrition, aiming to earn more per unit. Slower consumer-category growth and higher input costs make that transition important. Premium pricing helps only if additional revenue survives manufacturing, marketing, and investment costs. Can Hill’s improve those returns enough to strengthen the parent’s earnings and support its valuation?
Familiar Brands Must Earn Their Keep
Colgate-Palmolive Company reported a 41.3% global toothpaste market share by value through the second quarter of 2026. Familiar brands and broad distribution make repeat purchases convenient. Manufacturing scale spreads factory and product-development overhead across more units, helping protect margins.
Hill’s gives Colgate-Palmolive Company another source of loyalty. Veterinary recommendations and specialized diets can make owners reluctant to change food that suits a pet’s health needs. Prescription Diet delivered both pricing and volume growth in the second quarter, providing evidence that therapeutic demand can withstand higher prices.
Maintaining that advantage requires research, professional relationships, and advertising. Competing brands challenge shelf space and reach customers online, while household budgets constrain premium purchases. The relevant test is the cost of keeping customers: repeat business deserves a premium only when it leaves attractive profits after retention spending.
Lower Charges and Operating Growth Do Different Jobs
Colgate-Palmolive Company carries approximately 22x forward P/E and 35x trailing P/E. Trailing P/E uses historical earnings; forward P/E uses forecast earnings. Recurring demand and cash generation support the valuation, but sustaining it requires stronger operating earnings after the spending needed to maintain those franchises.
Reported GAAP profit was depressed by a $919 million pretax skin-health impairment recorded in 2025 after business prospects weakened, particularly in China. The charge reduced the accounting value of those businesses without consuming cash when recorded. Its absence would improve reported profit against that depressed base without an equivalent cash windfall.
Company-defined non-GAAP Base Business earnings exclude impairment and restructuring charges. Management expects mid-single-digit Base Business EPS growth in 2026, supported by pricing and productivity despite higher advertising and input costs. Analysts expect roughly 6% adjusted EPS growth in 2027. Repurchases contribute too: second-quarter adjusted net income increased 6%, while EPS rose 8% as fewer shares divided the profit.
The restructuring program carries estimated cumulative pretax charges of $350 million–$550 million, with 80%–90% requiring cash. Substantially all charges are expected by the end of 2028; $318 million had been recognized by June 2026. Management targets $200 million–$300 million in annual pretax savings after implementation. Those savings could raise ongoing profit. Disappearing charges alone would not improve adjusted earnings because those expenses are already excluded.
Adjusted profitability also includes temporary benefits that flatter recurring earnings. Tariff refunds supplied roughly one-third of second-quarter group gross-margin expansion. Further improvement needs productivity and branded demand to offset inflation after that benefit passes.
The Historical Discount Comes With Slower Growth
The current forward P/E of Colgate-Palmolive Company compares with approximately 24x at year-end 2024 and 20x at year-end 2025. The multiple sits between those two observations, alongside an earnings outlook that has improved from 2025 but remains below 2024’s growth pace.
Organic sales grew 7.4%, and Base Business EPS increased 11% in 2024. In 2025, those growth rates slowed to 1.4% and 3%, respectively, as category demand weakened, private-label sales disappeared, and material costs pressured margins. Slower growth gives investors a reason to pay less than in 2024. Sustaining the premium to 2025 requires the recovery to continue.
Hill’s must demonstrate that improvement can last. For Colgate-Palmolive Company, separating pricing-led growth from the breadth of demand is essential. Second-quarter organic sales rose 2.1%, with pricing up 3.9% and organic volume down 1.8%. Management said volume would have been flat without the private-label exit. Replacement branded volumes still need broader growth to spread factory costs across more units.
Hill’s gross margin improved 2.4 percentage points through productivity, pricing and mix. However, selling and administrative expenses rose 2.6 points relative to sales, predominantly because of advertising. That spending contributed to operating margin’s decline to 22.5% from 22.9%. Supporting the valuation requires sales to outgrow advertising and overhead so that better manufacturing economics reach shareholders.
A Peer Premium Must Earn Its Place
Church & Dwight Co., Inc. provides a close operating comparison across frequently purchased oral, personal, and household care brands. Its forward P/E is approximately 24x, versus 22x for Colgate-Palmolive Company. Analysts expect 2027 adjusted EPS growth of roughly 7% and 6%, respectively. Faster expected growth provides a business reason to pay more for the peer.
The peer’s U.S. focus reduces currency-translation exposure, while Hill’s therapeutic diets provide a separate source of repeat demand. The parent’s second-quarter Base Business operating margin was 21.4%, versus the peer’s adjusted 18.8%. Higher marketing and amortization of acquired brands weighed on the peer. Its stronger growth outlook therefore comes with lower current operating profitability.
Cash generation provides another comparison. First-half operating cash less capital expenditure represented approximately 14% of sales for the company and 13% for the peer. Both carry net debt, making cash retained after distributions important for financing growth.
Colgate-Palmolive Company generated $1.742 billion of first-half operating cash. Subtracting $266 million in capital expenditures leaves about $1.48 billion, up from $1.25 billion. Dividends and repurchases consumed all of it essentially. Working-capital movements absorbed $137 million less cash than a year earlier, as improved payables and other movements outweighed additional money tied up in inventories and unpaid customer invoices. That timing benefit need not repeat.
At 22x, branded growth and productivity must fund marketing, inflation and restructuring while sustaining mid-single-digit EPS growth. Otherwise, maintaining distributions would leave less cash for investment or require additional borrowing. Still, CL could be worth considering for beginner investors, although 10 other stocks rank higher on our list of the best stocks for beginners.
Conclusion
Colgate-Palmolive Company has durable franchises that support its forward valuation, but Hill’s transition has yet to deliver higher operating margins. The investment case rests on sustained earnings and cash growth beyond the recovery from accounting charges.
Hill’s must broaden branded-volume growth and make sales outpace advertising and overhead. Group savings must also produce cash after restructuring payments. Persistent volume stagnation, margin erosion, or borrowing to sustain distributions would make 22x harder to justify.
READ NEXT: Flowers Foods (FLO) Lost Volume as Price/Mix Rose. Is the Bread Aisle Breaking its Business Model? and Williams-Sonoma (WSM) Grew Comparable Brand Revenue While Non-GAAP Operating Margin Fell. Can Demand Restore Operating Leverage?
This article is originally published at Insider Monkey.
