Consumer staples company Colgate-Palmolive (CL 72.86, -4.45, -5.8%) reported its fourth quarter results before the open. Its stock is sinking in the wake of that report, as valuation concerns were heightened by the company's limited growth and pricing power in the fourth quarter.
At Thursday's close, Colgate-Palmolive was trading at approximately 25x estimated FY18 earnings.
For the fourth quarter, Colgate-Palmolive reported a 4.5% increase in net sales of $3.89 billion, which was shy of analysts' average expectation. On a non-GAAP basis, diluted earnings per share of $0.75 was even with the year-ago quarter and in-line with analysts' average estimate.
The lack of bottom-line growth was disappointing, as the company's sales leverage was negated by lower pricing, higher raw and packaging material costs, and higher SG&A expenses as a percentage of net sales.
For the period, the company's non-GAAP gross profit margin dipped 40 basis points to 60.4% while its non-GAAP operating profit margin decreased 190 basis points to 26.0% on increased advertising investment.
The company suffered from lower pricing in North America, Latin America, and Europe, which accounted for 62% of company sales. The Asia Pacific region saw 1.5% higher pricing while pricing in the Africa/Eurasia market was flat.
Global unit volume rose 3.0% in the fourth quarter, led by 6.0% volume growth in Europe and 4.5% volume growth in North America. The lower pricing, then, clearly helped drive drive unit volume growth in those regions, but the trade-off was reduced profitability.
Colgate-Palmolive pointed out that it finished the year with an acceleration in its top-line growth worldwide and that it intends to increase its advertising investment in 2018 as it looks to sustain its leadership in the global toothpaste market where it holds a 43.3% market share.
The company said category growth worldwide remains challenging, yet it is forecasting a mid-single-digit net sales increase in 2018 and low-to-mid-single digit organic sales growth, with improvement in organic sales growth versus the second half of 2017.
In addition, Colgate is planning for increased operating cash flow, gross margin expansion, increased advertising investment, and low double-digit earnings per share growth on a non-GAAP basis, including the impact of tax reform in the U.S.