Morning Note: Market news and an update from Colgate-Palmolive.

Market News

Brent Crude fell heavily to $72 a barrel after Israeli strikes on Iran avoided oil facilities. Citi has cut its 12-month forecast to $60, while hedge funds slashed their bullish bets. The 10-year Treasury yield rose to 4.27%, while gold trades at $2,732 an ounce. China’s gold demand plunged 22% to 218 tons in the third quarter as record prices and a sluggish economy dented consumption, especially for jewellery.

US equities ended last week on a mixed note – S&P 500 (flat); Nasdaq (+0.6%). The banks got hit as New York Community Bancorp tumbled 8.3% on a weaker outlook. Goldman Sachs and JPMorgan Chase also fell. A gauge of the “Magnificent Seven” mega caps notched its best back-to-back jump since February.

It’s another busy week for corporate earnings with results from BP, Adidas, Styker, Visa, Alphabet (Google), Glencore, Barrick Gold, Microsoft, Shell, and Anheuser-Busch InBev.

In Asia this morning, the yen fell to a three-month low (153 versus the dollar) after Japan’s ruling coalition failed to win a majority in parliament, stoking speculation the political uncertainty would make the central bank less hawkish. The Nikkei 225 rose by 1.8%, led by export-related companies. In China, industrial profits extended their drop as deflation takes its toll. Equities nudged higher: Hang Seng (+0.3%); Shanghai Composite (+0.7%).

The FTSE 100 is currently little changed at 8,244, held back by the oil majors. UK banks are facing billions more in payouts after the latest auto loan ruling. Ahead of Wednesday’s Budget, Sterling trades at $1.2961 and €1.2005, while 10-year gilts yield 4.24%.

In France, Moody’s cited “increasing risk” over the country’s debt and deficit as its cut its credit outlook to Negative from stable.

Source: Bloomberg

Company News

On Friday lunchtime, Colgate-Palmolive released Q3 results which were a touch above market expectations and nudged up its full-year guidance to the top end of the range. However, the group suffered a revenue decline in North America, and in response the shares were marked down by 4% during Friday’s trading session.

Colgate is a globally diversified consumer products company, which generates 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 (41.6%) and in manual toothbrushes (32.3%). 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 three months to 30 September 2024, reported worldwide net sales increased by 2.4% to $5.0bn, in line with the market forecast. Organic growth was 6.8%, despite the tough year-on-year comparative. The group generated a volume increase of 3.7%, with growth in every division, and pushed up pricing by 3.1% despite lower levels of underlying inflation.

The Oral Care, Personal Care, and Home Care businesses are grouped together and split by geography.

-          North America (20% of annual sales), grew organic fell by 1.9% (volume +1.2%; pricing -3.2%)

-          Latin America (24% of sales), rose by 14.2% (volume +3.3%; pricing +10.9%)

-          Europe (14% of sales) was up 6.3% (volume +4.1%; pricing +2.2%)

-          Asia Pacific (14% of sales) grew 6.1% (volume +6.5%; pricing -0.3%)

-          Africa/Eurasia (6% of sales), rose 10.8% (volume +6.9%; pricing +3.9%)

-          Hill’s Pet Nutrition (22% of sales), which is treated as a separate global division, generated growth of 6.5% (volume +3.6%; pricing +2.8%).

The gross margin was up 270 basis points to 61.3%. 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 50 basis points to 21.5%. On a ‘Base Business’ basis, EPS grew by 6% to 91c, slightly above the market forecast of 89c.

Free cash flow has risen by 17% in the year to date and net debt fell by $0.5bn in the quarter to $6.9bn. $2.5m was returned to shareholders through share repurchases and dividends.

The group pushed up its full-year guidance – it now expects organic sales growth of 7%-8%, at the top end of the previous 6%-8% range. The company still expects gross profit margin expansion, increased advertising investment, and now expects EPS growth of 10-11%, versus 8%-11% previously.

Source: Bloomberg