Do Colgate's (CL) Strategies Indicate Earnings Beat In Q4?

We expect Colgate-Palmolive Company (NYSE:CL) to beat expectations when it reports fourth-quarter 2017 results on Jan 26.

The company has posted in-line earnings in three of the trailing four quarters. Moreover, the company beat its nearly four-year long trend of missing Zacks Consensus Estimate in the previous quarter. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The question lingering in investors’ minds is whether this consumer goods behemoth will be able to deliver a positive earnings surprise in the quarter to be reported. The current Zacks Consensus Estimate for the quarter under review is pegged at 75 cents, which is in line with the year-ago period figure. Also, the earnings estimate has been stable over the last 30 days. Notably, analysts polled by Zacks expect revenues of $3,921 million, up 5.4% from the year-ago quarter.

Colgate-Palmolive Company Price and EPS Surprise

Colgate-Palmolive Company Price and EPS Surprise | Colgate-Palmolive Company Quote

Colgate has outperformed the industry in the past month, reflecting optimism building on the stock recently. The company’s shares have surged 3.1%, compared with industry’s growth of 1%.

Factors Driving this Quarter

Colgate is encouraged by the progress on the Global Growth and Efficiency Program along with additional savings anticipated from the recent expansion of the program. The company’s board on Oct 26 approved an expansion and extension of the program through Dec 31, 2019. This will enable the company to take advantage of the incremental opportunities in the process of streamlining operations. Additionally, it expects after-tax savings from the program to increase to $500-$575 million, compared with $425-$475 million estimated earlier. The projected savings target a three to four year average cash payback, with an after-tax rate of return above 30%.

Moreover, innovation and in-store implementation have been the guiding principles for Colgate’s growth strategy over the years, enabling it to capture market share across all regions and categories. The company is coming up with Naturals, an innovation to counter local toothpaste brands, particularly in Asia and Eurasia. It has managed to tailor the Naturals offerings in each of its major markets. For example, the brand will be interpreted differently in India and China. Moreover, the company anticipates growing market share in 2017 via a series of innovative product launches lined up for the year.

However, the company’s margins continue to be strained due to increased raw material and packaging costs, as well as higher advertising expenses. Further, it anticipates these costs to persist and impact margins in 2017. Additionally, management has perked up costs guidance related to charges arising from the expansion and extension of the Global Growth and Efficiency Program.

What the Zacks Model Unveils?

Our proven model shows that Colgate is likely to beat earnings estimates because it has the right combination of two key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. The company has an Earnings ESP of +0.13%. This along with the company’s Zacks Rank #3 makes us reasonably confident of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks with Favorable Combination

Here are some other companies you may want to consider as our model shows that these also have the right combination of elements to post an earnings beat:

Tractor Supply Company (NASDAQ:TSCO) has an Earnings ESP of +0.92% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ross Stores Inc. (NASDAQ:ROST) has an Earnings ESP of +1.91% and a Zacks Rank #1.

The Estée Lauder Companies Inc. (NYSE:EL) has an Earnings ESP of +0.56% and a Zacks Rank #2.

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