Oral Segment to Trigger More Growth
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Shares of Colgate-Palmolive (NYSE: CL) have outperformed the overall S&P returns in the last year. This stock has given returns of around 18% compared to the S&P returns of ~14%. I would give full credit for this noteworthy performance to the company's consistent innovation in its product line, keeping consumers continuously involved in its brands. Colgate directly competes with the other two strong players in the industry, Unilever (NYSE: UL) and Procter & Gamble (NYSE: PG). Unilever's stock has also posted good returns of ~15%, as compared to P&G's stock, which just managed with a return of mere ~4% in the last year.
Source: Yahoo! Finance
Booming Oral Care Segment
Colgate has maintained leadership in the oral care products sector with 27% of the global market share. Colgate's total sales increased by ~4.5% in the last month, which was mainly driven by its sales in the oral care segment, which were up by ~5.1%. One of its flagship products in the US, the Optic White, has helped the company to command a leading market share since its launch in 3Q 2011. It contributed around 16% to the total toothpaste sales of the company as per the recent monthly data released in the US. A complete Optic White oral care regiment was launched by the company in 2012 to further expand this successful franchise. The regiment included the Optic White toothpaste, along with a new Optic White mouthwash and the Optic White power toothbrush. With the global oral hygiene market expected to grow by ~16% to reach ~$29.5 billion in 2013 (~$25.4 billion in 2008), I am highly confident about the success of the company's oral segment.
Not So Booming Personal Care Segment
The trouble area for the company is in its personal care brands, which do not enjoy as dominant a position as its oral care segment. Colgate faces tough competition from Procter & Gamble in the developed markets and from Unilever in the emerging markets in this sector. Both these companies have a much bigger portfolio of personal care products compared to Colgate. P&G has seen a slowdown in its organic products sales in the last few years, which was reflected in its stock price as well. Therefore, it is currently focusing on cost cutting initiatives to restore investor's confidence. It is on track to terminate around 5700 non-manufacturing jobs by June 2013. Furthermore, it has also announced its intention to trim another 2-4% of jobs every year from 2014-16. I anticipate this move to improve company's bottom line starting from 2013.
Unilever, on the other hand, is building a strong position in emerging markets that should serve it well in the long-term. Currently, these markets generate ~56% of the company's revenue. Unilever offers personal care products at a lower price point compared to its competitors in the emerging markets, which have price-sensitive populations. This strategy has worked in favor of the company to drive up its sales in markets like India, Brazil, China and Indonesia. I feel Colgate needs to upgrade its portfolio with an innovative range of products at competitive prices in the personal care segment to increase its market share against these two companies.
The Investment Opportunity
I feel investors can totally count on the Colgate's oral care segment. One more reason for them to cheer up is its partnership with Omron Healthcare. Under this partnership, both companies will focus more on to innovation with new oral care solutions in developed as well as developing markets. The deal is a win-win situation for both sides, as Omron will bring the technical expertise that will combine well with Colgate's marketing expertise. It will also include a new line of electronic toothbrushes, which will expand Colgate's footprint into a brand new category. I also take this move as Colgate's important initiative towards the lucrative markets of the BRIC nations against the competition. Looking at the company's various initiatives in the oral care segment, I expect it to achieve an organic top-line growth of ~6-7% in 2013.
The Colgate story looks attractive to me, as the company is armed with an adequate portfolio via its oral care segment to book higher profits. I see further potential upside in the company's stock price in 2013.
ShwetaDubey has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble and Unilever. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!