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Colgate-Palmolive Company (CL)Stock (Consumer Products Industry, Personal Products Industry)With commercial presence on six continents, Colgate-Palmolive (NYSE: CL) is one of the world's largest consumer products companies. Since its 1806 founding, Colgate has grown into a sprawling multinational corporation with a record $3.7 billion in net sales and $ 0.8 billion in operating profit for FY 2008 Q2.[1] The company's flagship toothpaste product line serves billions worldwide and commands a staggering 40% world market share. Colgate's major advantages are the strength of its brand and its strong, global presence: 82% of the company's Q2 FY 2008 revenues came from outside the United States, and about 40% came from rapidly growing emerging markets (Latin America represented Colgate's single largest source of revenue in 2007).[2] Colgate's brand strength in foreign markets allows the company to command impressive market share and high profit margins. An example of this is Colgate's leading mouthwash market share of 40% in Brazil.[3] Colgate’s recent outperformance of its peers within the consumer products market is a testament to how management has positioned the company relative to its United States and global consumers. While consumer products companies in the United States have been hit hard by poor consumer spending domestically, Colgate has been steadily expanding its operations throughout Latin America, Africa, and Asia, maintaining quarter after quarter of positive sales growth in these regions.
[edit] Corporate OverviewColgate-Palmolive traces its roots to 1806, when William Colgate first opened a starch, soap and candle factory in New York City, taking its current name for the first time in 1953. From these very humble beginnings, Colgate-Palmolive evolved into the world-class, multinational corporation it is today. Its operations by region are: North America, Latin America, Europe/South Pacific, and Greater Asia/Africa. The company divides its business into two product segments: Oral, Personal and Home Care, and Pet Nutrition. [edit] Oral, Personal and Home Care
[edit] Pet NutritionColgate's Hill's Pet Nutrition makes specialty pet nutrition products for dogs and cats. Hill's pet products are marketed primarily under two brand names: Science Diet, a wide array of over-the-counter products for everyday use, and Prescription Diet, therapeutic products sold to help malnourished pets threatened by disease. In FY 2007, Pet Nutrition accounted for 13% of sales. [edit] Product Sales by RegionColgate also divides its operations into the following regions: [edit] North AmericaNorth America is Colgate-Palmolive's oldest geographic region and one of its most mature markets. Growth has slown noticeably in recent years, though it hasn't stopped: fiscal 2007 saw a North American revenue increase of 5% (total North Am. revenue was $2.7B).[4] To maintain steady growth in this market, Colgate has employs three principle strategies:
[edit] Latin AmericaLatin America represents Colgate's single largest geographical region by sales and has been the prime propeller of the company's growth over the past decade. In all, Latin America represented 42% of Colgate's sales in emerging markets, with 50% of revenue coming from Mexico alone. Net sales in Latin America grew an impressive 15% in 2007 to $3.5 billion.[6] Strong growth in countries such as Brazil, Colombia and Argentina were driven by core brands such as Colgate Total and Sensitive toothpastes and Lady Speed Stick Double Defense deodorants. In addition to increases in sales volumes, Colgate's Latin American segment benefited from the declining dollar and a positive impact of foreign exchange. Despite the strong performance of this region in the recent past, analysts now fear that Colgate may be approaching a point of saturation in its Latin American region--if so, a noticeable slowdown in sales growth may be in the company's future. [edit] Europe/South PacificAt the beginning of 2006, Colgate modified its geographic report structure to "address evolving markets and more closely align countries with similar consumer needs and retail trade structures." As part of this move, Eastern European countries and Russia were transfered to the "Asia" region, while operations in the Srouth Pacific and Australia were transfered to the Europe/South Pacific region. The Europe/South Pacfic segment represents another of Colgate-Palmolive's more mature, slow-growing markets. In 2007, net sales grew to $3.4 billion representing a 14.5% increase from the year earlier.[7] Again, growth in this more mature market was driven primarily by rebranding and introducing new products such as Colgate Time Control, Colgate Max Fresh and Colgate Sensitive Multi-Protection toothpastes. Colgate also used its acquisition strategy to grow sales with its acquisition of GABA, a Swiss toothpaste maker, in 2003. [edit] Greater Asia/AfricaAs previously mentioned, in 2006, Eastern European countries and Russia were grouped into the Greater Asia/Africa region because they are more closely aligned with the growing emerging markets found in places like the Philippines, Vietnam and India. In FY 2006, net sales in Greater Asia/Africa increased by 5.5% to just over $2B. The company experiences particularly strong sales growth in Malaysia, Thailand, Vietnam, India and the Gulf States. These geographical regions also benefited from a decline in the value of the dollar. This segment includes several rapidly growing emerging markets and will likely be a driver of the company's sales growth. [edit] Trends & Forces[edit] RestructuringAt the end of 2004, Colgate-Palmolive unveiled a four-year restructuring and business-building program meant to allow the company to compete more efficiently on a global scale while cutting unnecessary operating costs to boost margins. As part of the program, Colgate has closed warehouse facilities, centralized purchasing and other supply functions, reallocated resources to high-growth emerging markets, and now plans to reduce workforce by 12%. Overall, Colgate predicts that the restructuring program will cost between $750 and $900M, but the projected annual cost savings of $250 to $300M may make the expenditure worth it. [edit] Emerging MarketsEmerging markets across the globe present strong growth opportunities for Colgate-Palmolive. As populations grow wealthier in emerging markets like BRIC (Brazil, Russia, India and China), consumers are becoming ever more sophicated shoppers. Colgate Palmolive's strong international presence means that it is much more highly exposed to emerging markets than its competitors. Generally, this exposure benefits Colgate--emerging markets can grow at three to four times the rate of developed markets such as the US, Western Europe and Japan, which means more profit opportunities and sales growth for Colgate. Despite these favorable conditions, however, there are dangers that arise with high dependence (see below, Latin America). [edit] Latin America: Market Saturation?One challenge that has arisen with Colgate's rapid expansion in Latin America is the company's overdependence on growth in that region. Currently, Latin America accounts for 47% of the company's total emerging markets exposure. Due to fast growth in the region, Latin America alone has contributed to 40% of Colgate's organic growth over the past few years. Because of this high dependence on Latin American growth, the company is highly vulnerable to Latin American economic slowdown and market saturation. This is particularly true of Mexico, which accounts for 52% of the company's sales in Latin America. [edit] Foreign Currency and the DollarAnother trend affecting Colgate-Palmolive is the relative strength of the dollar. Although the company is based in the US, Colgate-Palmolive derives more than two thirds of its profits from outside United States. Because of this, the company is very sensitive to the strength of the dollar. Over the past few years, the dollar been consistently weakening. As foreign currencies strengthen relative to the dollar, goods sold in foreign markets are suddenly worth more dollars back in the US, boosting earnings. If the dollar continues to weaken, it will continue to have a positive effect on Colgate-Palmolive's earnings. Colgate has broad exposure to foreign currencies and actively hedges a large portion of these to avoid wide swings in earnings from currency fluctations. Although this heding limits the potential upside of a weakening dollar, it also insulates the company from drastic upswings in the dollar's strength. [edit] Comparison to CompetitorsColgate has a strong position relative to its competitors, which include consumer product companies Procter & Gamble Company (PG), Avon Products (AVP), Kimberly-Clark (KMB), and Clorox. Colgate has several advantages over its competitors:
These formidble advantages can sometimes also be drawbacks, however. Colgate's high emerging markets exposure and its dominant position in some of these markets make it particularly susceptible to the entrance of multinational or local competitors which can quickly gobble up market share, for instance, and its product focus diverts funds that could otherwise be used for expansion across a broader spectrum of consumer or other products.
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