Colgate Innovation, Pricing Strategies Boost Sales
This article was originally published in The Tan Sheet
Executive Summary
The personal care products firm reports 8% organic growth in the second quarter, including 13% organic growth in emerging markets. Colgate’s higher prices and cost-savings programs allowed it to increase investments in advertising worldwide.
Colgate-Palmolive Co. credits its highest organic growth in eight quarters to delivering innovative products while increasing prices and investing in advertising without forfeiting a compelling value proposition.
Colgate’s organic sales, which exclude foreign exchange, acquisitions and divestments, advanced 8% in the firm’s fiscal 2012 second quarter. Net sales, excluding the pet nutrition business, increased 2.4% to $3.74 billion.
“The robust growth was led by the emerging markets where organic sales grew 13% in the quarter, and we are encouraged by the 2.5% organic sales growth in the developed markets,” CEO Ian Cook said in a July 26 release.
However, Colgate’s net income for the quarter was flat at $627 million, compared to $622 million in the year-ago period. The total reflected $14 million in after-tax charges that resulted from implementation of the firm’s business realignment and other cost-saving initiatives.
During a same-day earnings call, Cook said Colgate’s commitment to offering reasonably priced, cutting-edge products helped the firm grow market share globally.
“We still see our market shares growing because the consumer is looking for value and it is value through innovation that builds market share,” he said.
According to the executive, the New York-based firm continues to increase its share of the oral care market although key competitors – particularly in Latin America – spent three times more in advertising than Colgate in the quarter.
Innovations in Latin America, Colgate's biggest region representing 29% of its business, include Colgate Luminous White, Colgate Sensitive Pro-Relief Multi-Protection, Colgate Total Pro Gum Health and Colgate Triple Action Extra Whitening toothpastes.
In Brazil, the company says it has 72% of the toothpaste market, while in Mexico its year-to-date share is around 83%.
Total Latin American sales, excluding pet nutrition, grew 3% during the second quarter to $1.27 billion, with unit volume up 6.5%, according to the firm.
Benefits Of Brand Building
In the U.S., Colgate says recent launches including Optic White and Sensitive Pro-Relief have reinforced the firm's leadership in toothpaste. Its share of that market was up 1.5 share points versus a year ago to 36.6%, according to the firm's release.
Sales in North America advanced 1.9% to reach $758 million in the quarter.
Cook noted that Colgate increased total product pricing 3.5% in the April-June period. “Pleasingly, the higher pricing combined with the benefits of our cost-savings programs in all areas of the business allowed for higher advertising spending behind Colgate's brands worldwide,” he said.
Total worldwide ad spend increased 4% in the quarter to $457 million, Colgate reported.
Cook said the higher ad spending is working. “We are benefiting from integrated marketing programs that are actually happening in retail environments, particularly in the developed world, and those programs are brand-building programs.”
In a presentation earlier this year, Cook said Colgate is allocating about 13% of its advertising budget on social media (Also see "Growing Social Media Use Justifies Higher Online Ad Spend" - Pink Sheet, 26 Mar, 2012.).
Colgate is sticking to its projected full-year 2012organic growth rate of 6% to 7%.
Looking ahead, the company will continue to support its Funding-the-Growth cost savings and “strategic worldwide pricing” initiatives.
Colgate anticipates benefits from those programs will help offset the negative impact of foreign exchange effects and contribute to a higher gross margin in 2012, allowing for investment in additional advertising support behind new product launches the rest of the year.