A strong foundation has been laid for 2024
- 4Q23 EPS slightly exceeded market estimates, while net sales were relatively in line with expectations
- Management guided for 3-5% organic sales growth and mid to high-single digit EPS growth on a base business basis in 2024
- Solid volume growth in North America, Latin America, and Africa/Eurasia helped mitigate volume weakness in Europe, Asia Pacific, and Hill’s
4Q23 EPS slightly exceeded market estimates, while net sales were relatively in line with expectations. Colgate reported diluted EPS of US$0.87 in 4Q23, slightly exceeding the consensus estimate of US$0.85. This marks an increase from US$0.01 in 4Q22, where goodwill and intangible assets impairment charges were booked. On a base business basis, 4Q23 EPS was up 13% y-o-y. Meanwhile, 4Q23 net sales of US$5bn (+7% y-o-y) were relatively in line with consensus’ estimate of US$4.9bn. The company’s organic sales also rose by 7% y-o-y in 4Q23, on the back of 7% increase in pricing, while volume was flat due to the negative impact of lower private label volume at Hill’s, its pet nutrition business. Excluding this impact, total company volume would have seen an increase for the quarter, primarily led by robust volume growth in toothpaste.
Both on a GAAP and base business basis, 4Q23 gross margin improved by 400 basis points (bp) compared to the prior year, reaching 59.6%. This improvement was driven by higher pricing (+280 bp) and cost savings from the company’s funding-the-growth initiatives (+300 bp), partially offset by higher raw material costs (-180 bp). The enhanced gross margin contributed to a 14% y-o-y growth in base business operating profit, despite an 18% y-o-y increase in advertising as the company continued to invest across its divisions to drive market share, brand health, and volume growth.
Management guided for 3-5% organic sales growth and mid to high-single digit EPS growth on a base business basis in 2024. Colgate anticipates net sales growth of 1-4% in 2024, driven by a 3-5% organic sales growth, with a low-single-digit negative impact from foreign exchange. The company foresees volume continuing to improve in 2024, aided by increased advertising spending, innovation, product superiority, effective communication, and strong investments in brand-building activities. Moreover, the company expects to deliver balanced organic sales growth in all divisions and categories, driven by both volume and pricing growth.
Additionally, the company projects double-digit EPS growth on a GAAP basis and mid to high-single digit EPS growth on a base business basis in 2024. Management foresees continued gross margin expansion in 2024, attributed to carryover pricing from 2023, benefits from Revenue Growth Management, and funding-the-growth initiatives. These factors are expected to offset modest increases in raw and packaging material costs, along with the transactional impact of foreign exchange. The company is also preparing for higher advertising spending in 2024.
Solid volume growth in North America, Latin America, and Africa/Eurasia helped mitigate volume weakness in Europe, Asia Pacific, and Hill’s. Colgate’s organic sales growth was driven by growth in all six divisions and all four categories, led by double-digit growth in oral care. By division, 4Q23 organic sales growth were North America (+3.5% y-o-y); Latin America (+16.5% y-o-y); Europe (+3.5% y-o-y); Asia Pacific (+1% y-o-y); Africa/Eurasia (+17% y-o-y); Hill’s (+4.5% y-o-y). There was positive organic volume growth in North America (+0.5% y-o-y), Latin America (+8% y-o-y), Africa/Eurasia (+7.5% y-o-y), while Europe, Asia Pacific, and Hill’s still reported negative organic volume growth of -4%/-4.5%/-4% y-o-y respectively.
Volume in North America showed sequential improvement, attributed to ongoing innovation and increased advertising, while organic sales growth in this market was led by oral care and personal care. Latin America experienced robust volume growth, driven by mid-single-digit increases in oral care, personal care, and home care, particularly with double-digit volume growth in Mexico and Brazil. Despite significant foreign exchange, geopolitical, and macroeconomic challenges, Africa/Eurasia delivered strong volume growth, led by double-digit growth in toothpaste and body wash. In Europe, growth was negatively impacted by the Filorga business, while the oral care and body wash segments remained strong. Weak volume in Asia Pacific was attributed to a slowdown in China, and Hill’s volume was affected by lower private label volume.