Story Stocks^®

Mega cap tech stocks have been dominating the headlines in recent months. Today, we wanted to focus on a consumer products company that is also making new all-time highs: Colgate-Palmolive (CL). The company does a lot more than toothpaste. It operates segments focused on Oral Care, Personal Care, Home Care and Pet Nutrition. Brands include Colgate, Palmolive, Irish Spring, Protex, Sanex, Softsoap, Speed Stick, Ajax, Fabuloso, Hill's Science Diet and many others.

• A few years ago, the company was struggling with declining or roughly flat sales. However, in recent years, it has refocused on growth. Even back then, it had strong core businesses and household penetration around the world. CL explained that, in terms of its big franchises, it needed to expand into adjacencies and adjust its portfolio strategy for channel expansion around the world.
• CL explained that everyone was focused on market share, but CL reoriented around brand penetration. Specifically, CL picked categories and country combinations that were going to be much more oriented towards growth. And it put investment behind this strategy. It also restructured the company around organizational design to boost growth opportunities. And the results are paying off as CL has reported 19 consecutive quarters of yr/yr growth.
• In late April, CL reported a healthy Q1 beat on EPS and revenue. Revenue grew 6.2% yr/yr to $5.07 bln, with organic sales growth in all four categories, all six divisions, and volume and pricing growth on a total company basis. This allowed CL to post 6.2% total growth, which is quite good for a consumer products company. CL was also lapping healthy 6.5% growth in the year ago period.
• CL explained that the focus on balance between pricing and volume growth allowed it to deliver solid volume growth in Q1 even with the continued volume softness in China and the expected headwind from lower private label growth as it transferred more Hill's volume into its Pet Nutrition manufacturing network. Increased advertising spending also helped drive growth across a greater percentage of its portfolio in Q1 as CL wants to keep its biggest brands relevant and vibrant in consumers' minds.
• What stood out to us in Q1 was the company raising its FY24 organic sales growth guidance to +5-7% from +3-5% prior guidance. That is a fairly large jump for a consumer products company. Also, they did that after just one quarter. Oftentimes, companies will wait until later in the year to increase full year guidance, because maybe Q1 was just an outlier and they would rather wait to see how Q2 pans out. To raise this early, we view this as a sign of confidence for how 2024 will play out.

Overall, we concede that Colgate-Palmolive is not as exciting as the AI tech craze. However, the stock has quietly and steadily moved higher since early October, which makes it worth a look. Also, we have heard from many retailers that consumers are focusing more on need than on discretionary items. And CL is much more on the everyday need side (toothpaste, soap, deodorant, pet food etc.), so that is a good trend for them. CL will report Q2 results in late July.