Monday, May 4, 2020

Colgate-Palmolive’s Stock Dips Despite Strong 1Q

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What’s happening: Shares of Colgate-Palmolive Company fell on Friday despite the consumer products company reporting strong first-quarter results.

What happened: Shares of Colgate-Palmolive fell 2.5% during regular trading hours on Friday, following the release of quarterly results.

Investor sentiment has generally been positive for Colgate-Palmolive so far this year, with people stockpiling goods amid lockdowns across the globe. In fact, Colgate-Palmolive’s stock has so far been immune to the overall market’s freefall, with shares down by merely 0.5% year to date.

Despite this and the company beating both sales and profit expectations for the first quarter, investors chose to focus on certain issues highlighted by the overall results and management withdrawing the outlook for 2020.

How were the results: Colgate-Palmolive recorded growth in revenues and earnings and surpassed expectations.

  • Net income climbed to $715 million, or 83 cents per share, from $560 million, or 65 cents per share, in the same quarter last year. The figure came in higher than the consensus estimate of 73 cents per share.
  • Sales grew to $4.10 billion, from $3.89 billion in the year-ago quarter and beat Wall Street estimates of $4.08 billion.

Why it matters: Although Colgate-Palmolive witnessed strong volume growth in the latest quarter, there were some concern areas.

The company’s sales in North America, which represents a quarter of overall sales, gained 9%, while European sales jumped 12%. However, sales in the Asia-Pacific region plummeted 12% for the quarter.

While some categories gained as consumers loaded up their pantries amid the stay-at-home orders, other categories were significantly weakened. Moreover, the coronavirus pandemic had a negative impact on the operations of FMCG companies.

The New York-based company withdrew its outlook for the year, citing uncertainties related to buying behaviours after the lockdowns are eased. Management indicated that the company’s 2020 sales may be negatively impacted by unfavourable foreign exchange rates.

Colgate-Palmolive also disclosed that it continued to witness supply chain disruptions, despite some improvement in trends. The oral care giant also said it had not expected India to close down the way it did. The lockdown in India is severely hurting the company’s Asia-Pac sales. A three-week lockdown in India was further extended to May 17 to control the spread of the virus.

During mid-March, Colgate-Palmolive raised its quarterly dividend from 43 cents per share to 44 cents per share and announced the retirement of its Chairman Ian Cook, naming CEO Noel Wallace as his successor.

What to watch: Colgate-Palmolive’s operations need to resume for the company to return to its normal growth trajectory. With various countries now planning to reopen their economies, investors will be on the lookout for news related to the resumption of the company’s operations. Moreover, any projections by management will be welcomed by investors till the company formally issues its outlook for the year.

The Markets Today

     

US stocks would be in focus today, ahead of a couple of economic reports scheduled for later in the day.

Context: US stocks began the first trading day of the new month on a lower note after posting record gains for April. Investors were disappointed by various companies issuing warnings related to the COVID-19 outbreak and rising tensions with China.

Details: The S&P 500 declined around 3% on Friday, closing slightly lower for the week, after Amazon and Apple issued sobering views around the coronavirus impact on their business. Exxon Mobil also reported its first quarterly loss in more than 30 years.

Although the S&P 500 delivered its best monthly performance for the April month due to a slowdown in COVID-19 cases globally, the latest earnings releases and economic reports are pointing towards more pain ahead. Amazon warned of a potential loss for the second quarter due to massive coronavirus-related expenses. Apple didn’t issue earnings guidance at all citing uncertainty related to the pandemic.

US President Donald Trump threatened to retaliate against China for its way of handling the coronavirus outbreak, by implementing various tariffs on the world's second-largest economy.

The Dow fell 2.55% to close at 23,723.69 on Friday, while the S&P 500 declined 2.81% to settle at 2,830.71. The Nasdaq 100 lost 3.20% to finish the trading day at 8,604.95.

What to watch: Investors continue to keep an eye on the daily coronavirus numbers, with the total number of cases exceeding 3,507,420 globally. The number of positive COVID-19 cases in the US has surpassed 1,158,040 with around 67,680 deaths.

Markets await a couple of economic reports from the US, including the ISM New York index and factory orders. US factory orders, which were unchanged in February, are expected to plummet 9.8% in March.

Other Markets: European indices were trading lower at 9:00 am GMT, with Spain’s IBEX 35, German 30 and French 40 down by 3.1%, 3.1% and 3.5%, respectively.

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South Africa’s total vehicle sales, Mexico’s business confidence, manufacturing PMI and foreign exchange reserves, Brazil’s manufacturing PMI and balance of trade as well as Russia’s corporate profits.