Monday, October 18th, 2010
NEW YORK (Dow Jones)—Colgate-Palmolive Co. (CL), the world’s largest maker of toothpaste, is starting to see sales growth lose steam as rival Procter & Gamble Co. (PG) makes a more aggressive push into oral care globally.
The maker of the Colgate toothpaste, Palmolive dishwashing soap, and Hill’s pet food in July acknowledged that competition in the household and personal-care sectors had spiked, and its second-quarter sales were weaker than expected. Those pressures are likely to linger on in the third-quarter, which Colgate reports at the end of this month.
In the U.S., Procter has launched a stream of new oral-care products like the Crest 3D White line of tooth-whitening products. It boosted its presence in the oral-care market in Brazil with the 2009 introduction of the Oral-B Pro Saude toothpaste for that market, and has started launching a Pro-Expert line of toothpastes and toothbrushes in parts of Central and Eastern Europe, Middle East and Africa.
Colgate is the world’s biggest maker of toothpaste by sales and market share, but it is a smaller company than rivals P&G and Unilever PLC (UL), both of which compete in a wider variety of categories and have deeper pockets. Unilever, which sells toothpaste brands like Signal in some markets outside the U.S., has also turned more aggressive in pushing for global market-share gains across its categories.
There has been speculation P&G could launch a new toothpaste in India, another Colgate stronghold. A spokeswoman said P&G sees “many opportunities for growth” in oral care through innovation and expansion into new markets. In soap, another area of competition with Colgate, P&G has made a bigger push by launching a new Gain dishwashing liquid in the U.S.
Colgate has long been an investor favorite, particularly in difficult economic times. Some long-term investors say they still like the stock, but acknowledge concerns about the competitive onslaught.
Andrew Burns, chief investment officer of Hamilton Point Investment Advisors, which holds shares of Procter & Gamble Co. (PG) and Colgate-Palmolive Co. (CL), likes both for their growth potential in emerging markets. But Colgate is probably “not the story it was 10 years ago,” Burns acknowledges. “The old story was: P&G was domestic and Colgate was international. But P&G has woken up to the fact they have to play catch-up.”
Colgate’s second-quarter growth in organic sales—a key measure that excludes acquisitions and foreign exchange—was 3.5%, slower than 6% in the first quarter.
Emerging regions like Latin America have traditionally been Colgate’s stronghold. But P&G across all its businesses is now launching new products and investing more in growing its businesses in these fast growing markets, particularly where it had previously lagged. Colgate’s stock is down 8% for the year, even as P&G has gained 3% and the broad S&P 500 has risen 6%.
Consumer Edge Research analyst Bill Pecoriello expects Colgate’s slower second-quarter sales growth to continue into the third quarter. For the year to date, it has lost two points of market share in the U.S. toothpaste industry, he says. Pecoriello believes Colgate will have to increase its marketing and promotional spending, and that could hurt 2011 earnings.
“They will have to step up spending to defend share in toothpaste. It’s a matter of when, not if,” says Pecoriello.
A Colgate spokeswoman didn’t comment. The company pointed to a slowdown in consumer categories after reporting weaker-than-expected second-quarter sales growth. It expects to keep growing volumes in the 4% to 7% range, but expects to be at the lower end of that estimate for the balance of this year. In its second-quarter report it said its global toothpaste market share strengthened amid gains in places like Brazil and India. The company said new product launches in the U.S., like Colgate Max White with Mini Bright Strips toothpastes, have done well and that it has many new product launches in the pipeline.
Thursday, October 14, 2010 11:05:00 AM
By Anjali Cordeiro
