Morning Note: Market news and an update from Colgate-Palmolive.
Market News
This morning in Asia, the yen crashed towards 160 to the dollar, its lowest level for 34 years, before recovering sharply. There was speculation the authorities may have intervened. Japan’s stock market was closed for a holiday, while markets elsewhere moved higher: Hang Seng (+0.9%); Shanghai Composite (+0.7%). Property shares surged after a major Chinese developer reached an agreement with bondholders.
After a strong week on Wall Street, spurred on by impressive results from Alphabet and Microsoft, the S&P 500 is currently expected to open 0.3% higher this afternoon. The FTSE 100 is currently trading 0.2% higher at 8,181. BHP is considering an improved bid for Anglo American after its $39bn offer was rejected, people familiar said. Traders are braced for another busy week of corporate earnings, with results from Vonovia, Adidas, Glencore, HSBC, Cameco, Barrick Gold, Marriott, MasterCard, Shell, Becton Dickinson, and Apple.
Federal reserve policymakers have shifted the debate from how many times the central bank will cut rates to whether to ease at all this year. Swaps traders now see only one reduction for 2024. The 10-year Treasury currently yields 4.65%, while gold remained steady at $2,330 an ounce.
The oil price slipped back to $87.30 a barrel as the US stepped up its efforts to secure a truce in Gaza. Sterling trades at $1.2522 and €1.1686.
Chinese auto makers rose by 3%-8% after the government said it will give a one-time subsidy of as much as $1,380 to consumers who trade in their old vehicles and buy a newer model.
Source: Bloomberg
Company News
Last Friday, Colgate-Palmolive released Q1 results which were above market expectations. Guidance for 2024 sales was raised and, in response, the shares were marked up by 2% during Friday’s trading session.
Colgate is a globally diversified consumer products company, which generated around $20bn of sales from a focused portfolio of strong brands including Colgate, Palmolive, Sanex, Ajax, and Hills Pet Nutrition. Most notable is Colgate’s leadership of the global toothpaste market (41%) and in manual toothbrushes (33%). The company generates c. 80% of its sales from outside the US, with emerging markets accounting for half of its sales, leaving the group well placed to benefit from a growing middle class. A strong mix of home-grown products and a culture of innovation contributes to a return on capital meaningfully higher than the peer group. The group’s long-term target is to deliver organic sales growth of 3% to 5%, although in recent years this has been exceeded.
During the first quarter of 2024, reported worldwide net sales increased by 6.2% to $5.07bn, ahead of the market forecast of $4.96m. Organic growth was an impressive 9.9%, once again driven by price (+8.5%). However, volume has now moved back into positive territory (+1.3%).
The group generated growth in every division and in all four of its categories. The Oral Care, Personal Care, and Home Care businesses are grouped together and split by geography.
North America (20% of annual sales), full-year organic sales grew 4.0% (pricing +1.2%; volume +2.9%)
Latin America (24% of sales), organic sales grew 25.9% (pricing +19.7%; volume +6.2%)
Europe (14% of sales), organic sales grew 7.2% (pricing +4.1%; volume +3.1%)
Asia Pacific (14% of sales), organic sales grew 1.5% (pricing +4.4%; volume -2.9%)
Africa/Eurasia (6% of sales), organic sales grew 16.2% (pricing +12.2%; volume +3.9%)
Hill’s Pet Nutrition (22% of sales), which is treated as a separate global division, generated organic growth of 4.2% (pricing +8.2%; volume -3.9%)
The gross margin was up 310 basis points to 60.0%, ahead of management expectations. The group leveraged its strong margin performance to invest behind building its brands, with a 16% increase in advertising spending. Underlying operating margin rose by 170 basis points to 21.4%. On a ‘Base Business’ basis, EPS rose by 18% to 86c, versus the market forecast of 81c.
Free cash flow before dividends was $555m and net debt held steady at $7.4bn. $903m was returned to shareholders through share repurchases and dividends.
The group has raised its guidance for 2024. It now expects organic sales growth of 5%-7%, above the previous forecast of 3%-5%. Raw and packaging material costs are still expected to increase modestly in 2024, while the company expects gross profit margin expansion, increased advertising investment, and mid to high single-digit EPS growth.
Source: Bloomberg