WhenColgate-Palmolive reported earnings in October, management said the consumer products giant would continue to feel the impacts of global economic weakness, and that the relative strength of the U.S. dollar would also weigh on earnings in the short term. However, management also discussed some long-term initiatives and trends, with three key topics coming up repeatedly on the earnings call.
Based on that call, here are the three things management clearly wants you to know.
1. Investments in efficiency will pay off soonThe company's "Global Growth and Efficiency" program has been expanded, and will now cost upward of $1 billion when completed in late 2016. However, management also expects to achieve a three- to four-year payback on this investment. CEO Ian Cook had this to say on the matter:
In short, the $1 billion investments should deliver almost $400 million in annual savings going forward.
1. Market shares are strong and growing
This is one of Colgate-Palmolive's strengths. The company's products are often No. 1 in market share, or near the top. From Delia Thompson, senior vice president of investor relations:
These are just two examples. The market share trend continues in the very important Latin American market, even in the face of economic uncertainty in many countries there.
3. Working through weakness in China with new productsChina, one of the world's largest consumer goods markets, has been a weak spot for Colgate-Palmolive this year. Much of the weakness is tied to large inventory levels at retailers, but management has projected that would work itself out soon. As Thompson put it:
As inventory levels normalize, the company is also making an effort to develop products that appeal to each market. While a gold-bristled toothbrush might not have mass appeal in the U.S., it could be a big seller in China. Only time will tell how this plays out, but the company's success with a similar strategy in other markets bodes well.
Long-term outlookWhile these aren't the only things the company wants you to know, these are three matters investors should pay close attention to. Reducing costs by almost $400 million is significant -- and worth more than 25% of the company's annual dividend expense. Continuing to innovate to maintain and even grow market share is also important for the company, and focusing on this in China is absolutely critical to the Colgate-Palmolive's long-term prospects.
While Colgate-Palmolive is a solid company, the stock looks a little expensive today, with a trailing price-to-earnings ratio above 30 and a forward P/E above 23. The company's business prospects are sound, but that's quite a premium to pay for a company with many short-term macro headwinds. I think it's worth keeping the stock on your watchlist, but there are at least a few better values to be had right now.
The article 3 Things Colgate-Palmolive Management Wants You To Know originally appeared on Fool.com.
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