Why Colgate-Palmolive Company Stock Dropped Today

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What happened

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Shares of Colgate-Palmolive Company (NYSE: CL) fell 4.9% on Friday after the consumer products giant announced disappointing fourth-quarter 2017 results, then warned of a difficult year ahead.

More specifically, Colgate's quarterly revenue climbed 4.5% year over year to $3.892 billion, as a 1% pricing decline was offset by 3% global unit volume growth and a 2.5% positive impact from foreign currency exchange. On the bottom line, that translated to a 1% decline in adjusted net income to $659 million, and flat earnings on a per-share basis at $0.75. Analysts, on average, were looking for the same earnings on higher sales of roughly $3.93 billion.

So what

Colgate CEO Ian Cook noted that revenue growth accelerated worldwide, thanks to higher advertising investments across every operating division. The company also boasts a 43.3% share of the global toothpaste market so far in 2018, as well as 32.6% of the global manual toothbrush market.

"We intend to increase our advertising investment in 2018 and to maintain the continuity of that investment throughout the year in support of new products, our base businesses and longer-term consumption-building activities," Cook added.

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Now what

To be sure, Colgate-Palmolive views those investments as crucial in maintaining its position given what Cook describes as "uncertainty in global markets" and "challenging category growth worldwide."

In the meantime, Colgate expects net sales in 2018 will increase in the mid-single-digit percent range, including low- to mid-single-digit organic sales growth.

That's not to say Colgate-Palmolive is a broken business. To the contrary, it remains a solidly profitable industry leader with an enviable stable of consumer brands. But it's hard to blame the market for being disappointed that heavier investments in advertising didn't quite yield the desired results. As such, with shares trading near an all-time high heading into this report, it's no surprise to see Colgate stock pulling back today.

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