Colgate’s sales disappoint despite price cuts

Consumer goods group Colgate-Palmolive said first-quarter sales came in below its expectations due to stagnant demand in Latin America – its biggest market – leading it to lower a widely watched sales forecast.

US packaged goods companies have been struggling with lower demand and price tensions with retailers, who are tightening inventories, offering discounts and focusing on private label brands to trim costs.

Even though Colgate spent nearly 13 per cent more on advertising this quarter over the prior quarter, and cut prices between 0.5 per cent and 2.5 per cent in Europe and North America compared with a year ago, organic sales did not see the boost they expected.

Growth in organic sales, that exclude benefits from acquisitions and divestitures, slowed to 1.5 per cent in the first quarter from more than 2 per cent in the previous quarter as the company saw no growth in volumes in developing markets.

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The company said it now expects these core sales to grow in the low-single-digit percentage range in 2018, compared with the low- to mid-single-digit growth it projected earlier.

The weaker top-line results are certainly not a huge surprise in light of the tepid results reported by Colgate’s peers, Suntrust Robinson analyst William Chappell said, but added that Colgate’s miss on sales was a surprise.

Colgate’s net sales rose 6.4 per cent to $4 billion, but came in slightly below the average analyst estimate of $4.02 billion.

Sales in Latin America rose just 0.5 percent to $929 million, hit by a slump in demand in Mexico, but pricing cuts in Europe and North America reversed some of the weakness.

Procter & Gamble Co earlier this month also posted organic sales growth that disappointed Wall Street, mainly because of pricing pressures in an environment where retailers are cutting back on costs.

Still, Colgate’s stock has outperformed peers. While the S&P 500 Household Products index has fallen more than 18 per cent in this year, Colgate shares are down 12 per cent. In comparison, P&G’s shares are down 21 per cent.

Excluding some items, Colgate earned 74 US cents per share, above analysts’ average estimate of 72 cents. – Reuters