CL
Earnings call · Dec 2024 (Q4 FY24)

COLGATE PALMOLIVE Q4 FY24 earnings call CL

Jan 31, 2025 Source

Executive summary

Colgate-Palmolive Q4 FY24 — Strong Organic Growth and Margin Expansion

Colgate-Palmolive delivered strong Q4 FY24 results, exceeding guidance with high single-digit organic sales growth driven by balanced volume and pricing across categories. The company is confident in its 2025 outlook, focusing on continued investment in brand health, innovation, and capabilities to sustain growth and margin expansion despite ongoing foreign exchange headwinds and a normalizing pricing environment.

Highlights

7

  • Achieved net sales of $20 billion in 2024, one year ahead of strategic plan ambition.

  • Delivered high single-digit organic sales growth in 2024, with pricing and volume growth in all four quarters.

  • Increased advertising spending by 15% (and 130 bps as a percentage of sales) in 2024, driving improved brand health.

  • Achieved third consecutive year of global toothpaste category value share growth.

  • Saw incremental sales contribution from innovation rise by 45% from 2021 to 2024.

  • Reported double-digit base earnings per share growth, ahead of initial guidance.

  • Generated record operating cash and free cash flow.

Concerns

4

  • Experienced significant foreign exchange headwinds impacting both net sales and gross margin.

  • Noted softer volume in parts of Europe and continued softness in the China skin health business in Q4.

  • Recorded approximately 100 basis points less pricing from Argentina in Q4 compared to prior quarters.

  • Observed heightened competitive activity in India, South Africa, and Turkey.

Guidance & targets

CategoryTargetConfidence
Organic sales growth
3% to 5%
high materiality
High
EPS growth
low-single-digit to mid-single-digit growth
high materiality
High
Gross margin
expansion
high materiality
High
Advertising and marketing levels
relatively flattish year-over-year
medium materiality
Medium
Argentina devaluation
not anticipated
high materiality
Low
Category growth rates
2% to 4%
medium materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
North America
Volume and price sequentially improved in the fourth quarter as we exited the year. Some benefits from shipment timing and strong volume performance ex-Skin Health. The company continues to view it as a strategic growth opportunity and will invest in the business, with new leadership in place and green shoots in categories like toothpaste, liquid hand soap, and dish.
—sequentially improved in the fourth quarter——
Latin America
Mexico and Brazil had good quarters with terrific market shares, and both volume and value shares are up. The underlying health of the business remains strong, outpacing categories in consumption. While there was a slight slowdown in Mexico in Q3, it has since stabilized.
Market share: 8 of 10 countries up or flatVolume share: 9 or 10 of those markets are up or flat
—performance continues to be very, very strong. It slowed a little bit in the fourth quarter, but that was more due to some of the pricing that I mentioned earlier that was in the year-ago number in Argentina or through the first 3 quarters that we didn't necessarily have in the fourth quarter this year.——
Europe
Achieved balanced pricing and volume growth in the quarter, attributed to strong RGM analytics and promotional spend optimization. A strong innovation pipeline in 2024 and expected in 2025 drives value and price orientation. Advertising to sales was up about 220 basis points, supporting brand health.
Oral Care market share: up 300 basis points versus 2016Market shares: record high in key geographies as of Q4
—terrific performance they had in 2024, and another strong fourth quarter coming off of a strong year-to-date before that. Organic growth across all hubs for the quarter.—Good operating profit and margin performance
China
The Colgate business alone performed extremely well, outpacing peers. However, the Darlie business continues to be a challenge, with opportunities for go-to-market changes in 2025. China remains a difficult market in the short to medium term, but is a long-term strategic growth opportunity.
Colgate business organic growth: high single-digit in Q4
—positive organic growth in the quarter——
Hill's Pet Nutrition
Achieved 3% volume growth in a roughly flat category, outperforming most competitors. The business fundamentals are strong, with continued focus on segment growth opportunities in small pet, cat, and wet food. Supply chain optimization, including the Tonganoxie facility ramp-up, is progressing as expected. Margin inflection is positive, driven by underlying business improvements and mix.
Private label impact on volume: 200 basis points dragMarket share: fastest-growing brands in pet specialty, strong share growth across other channelsE-commerce growth: greatPrescription diet: back to growth
—3% volume growth—margin has truly begun to inflect positively

Operational metrics

Net sales
$20 billion
2024

Achieved one year ahead of strategic plan ambition.

Organic sales growth
high single-digit on top of high single-digit growth in 2023
2024

Sixth consecutive year of organic sales growth either in line or ahead of long-term target of 3% to 5%.

Advertising spending
up 15% on top of 19% increase in 2023
2024

Driving significantly improved brand health.

Advertising spending as % of sales
up 130 basis points
2024

Increased investment driving improved brand health.

Incremental sales contribution from innovation
risen by 45%
2021 to 2024

Strategy to build and scale innovation capabilities is paying off.

Base EPS growth
Double-digit ahead of our initial guidance
2024

Achieved despite incremental foreign exchange headwinds.

Return on invested capital (ROIC)
35%, 36%
current

Continued improvement in top-tier return on invested capital.

Organic sales growth
almost 5%
Q4 FY24

Considered a more honest way to look at the business given the underlying base business strength.

Volume growth
almost 3%
Q4 FY24

Reflects a shift towards more volume-driven growth.

Argentina pricing impact
about 100 basis points less less than we had in the first 3 quarters of the year
Q4 FY24

Impacted overall pricing in the quarter.

Gross margin expansion
70 basis points versus a year ago
Q4 FY24

Achieved despite significant foreign exchange headwinds.

U.S. supply chain investment
$2 billion
last 5 years

Material investment into U.S. capabilities for resilience and flexibility.

Share buybacks (net)
$1.1 billion
this year

Part of capital allocation strategy to return value to shareholders.

Return to shareholders
up over 20%
year-to-year

Reflects focus on driving top-tier total shareholder return.

Middle-class consumers
$300 million
by 2030

Represents a long-term growth opportunity for the company.

Middle-class consumers
$600 million to $700 million
by 2030

Represents a significant long-term growth opportunity for the company.

Europe Oral Care market share
up 300 basis points versus where we were in 2016
current

Record market share performance in Europe, particularly in key geographies.

Europe advertising to sales
up about 220 basis points
Q4 FY24

Supporting brand health measures and driving operating profit growth.

Industry KPIs

MetricValueDetails
Sg a rate—
Organic sales growthhigh single-digit %
Household penetration—
Regional emerging market growth—
Advertising marketing investmentup 15% %
Commodity input cost sensitivitymoderating
Category level organic sales growth2% to 4% %
Innovation new product contributionrisen by 45% %
Category growth benchmark market sharethird consecutive year of global toothpaste category value share growth
Core underlying EPS and operating marginDouble-digit (EPS), expansion (Operating Margin) %

Product announcements

ProductTypeDetails
Colgate Totallaunch

Capital programs

Tonganoxie wet pet food facility ramp-up underway

Benefit:most automated facility in the world

The ramp-up continues as expected, optimizing the supply chain for Hill's Pet Nutrition.

Risks & headwinds

Foreign exchange headwinds 2025

significant

Mitigation:Building flexibility into the P&L, strong cash generation, taking pricing in affected markets (e.g., Latin America, Africa).

Competitive activity Q4 FY24, potentially ongoing

heightened competition in spending

Mitigation:Being selective in addressing competition, protecting brand health, strong innovation plans, retail strategies, and sustained advertising investment.

China Darlie business challenges short to medium term

challenge

Mitigation:Opportunities for go-to-market changes in 2025.

Potential tariffs 2025

not included any potential incremental tariffs in our '25 guidance

Mitigation:Long-term supply chain strategy focused on local manufacturing, U.S. investment, production flexibility, alternative sourcing, and standardizing formulas. Planning for multiple scenarios including retaliatory tariffs.

What to watch in Q1 FY25

2025 Organic Sales Growth

FY25
Current high single-digit (2024), 4.3% (Q4 FY24)
Target 3% to 5%

Why it matters

This is the key top-line growth driver, especially with the company's stated shift towards a more volume-driven algorithm.

So just as we think about the 3% to 5% guidance for 2025, maybe highlight your level of confidence relative to that Q4 result, and maybe what the key points of uncertainty are either positive or negative.

Q&A highlights

Sought clarity on the confidence in 2025 EPS guidance given FX headwinds and asked about the 3-5% OSG guidance in light of Q4's weaker performance.

Noel Wallace expressed confidence in delivering compounded dollar earnings growth, citing P&L flexibility, balanced volume/price, strong brand health, market share gains, and cash generation. He noted Q4 OSG was 4.3% (almost 5% ex-private label), which is strong, and highlighted a shift towards volume-driven growth.

“I've spoken many times to all of you about building flexibility into our plans, and that was very much inherent as we looked at our 2025 strategy back in 2020, how do we get more flex into the P&L as we pivot to a much more growth mindset oriented organization?”

asked by Dara Mohsenian · answered by Noel Wallace

2 min read 6 chapters

Detailed narrative

2024 Performance Highlights

Colgate-Palmolive achieved net sales of $20 billion in 2024, a year ahead of its strategic plan, driven by high single-digit organic sales growth for the sixth consecutive year. The company saw pricing and volume growth in all four quarters, with volume growth across every division and category. Increased advertising spending (up 15% in 2024, 130 bps as % of sales) and innovation (45% rise in incremental sales contribution from 2021-2024) were key drivers, leading to the third consecutive year of global toothpaste category value share growth.

2025 Outlook and Strategy

Management expressed confidence in delivering consistent compounded dollar earnings growth in 2025, targeting 3-5% organic sales growth. The strategy emphasizes balanced volume and pricing, supported by continued investment in capabilities, data analytics, and AI. The relaunch of Colgate Total with superior offerings in oral care is a key innovation driver. Strong cash generation provides flexibility for debt paydown and share repurchases, alongside business investments.

Gross Margin Trajectory and Drivers

The company achieved 70 bps gross margin expansion in Q4 FY24 despite significant FX headwinds. Management expects continued gross margin expansion in 2025, driven by positive mix from higher-margin businesses like Hill's and Oral Care, strong productivity from Funding-the-Growth initiatives, and improved revenue growth management (RGM 2.0) capabilities. A more moderating raw material environment is also expected to contribute.

North America Performance and Promotional Environment

North America saw sequential improvement in both volume and price in Q4, with strong volume performance excluding the Skin Health business. While pricing will improve in H2 2025, the promotional environment is expected to remain constructive, with some isolated pockets of increased competitive activity (e.g., India, South Africa, Turkey). Management plans for potential increased promotion as the market shifts from pricing-driven to volume-driven growth.

Hill's Pet Nutrition Business Update

Hill's delivered 3% volume growth in a roughly flat category in Q4, despite a 200 bps drag from private label. The business continues to see strong market share growth, e-commerce growth, and a return to growth in prescription diet. Supply chain optimization, including the Tonganoxie facility ramp-up, is progressing. Management expects the category to inflect positive in H2 2025, with Hill's focused on high-ASP segments like small pet, cat, and wet food.

Capital Allocation and Long-Term Strategy

Colgate's capital allocation prioritizes investing in the business for efficiency and growth, followed by share repurchases and dividends. The company achieved record operating cash flow of $4.1 billion, enabling $1.1 billion in net share buybacks and a competitive dividend. Management is finalizing its '2030 strategy,' which will maintain consistency with the 2025 plan's focus on growth mindset, innovation, productivity, brand health, and spending efficiency, with an increased emphasis on innovation, data/AI, and health-oriented products.

AI-generated summary of the company's earnings call. Not investment advice.