Colgate-Palmolive: Volume Growth on the Brink of Turning Negative

Global oral care leader Colgate-Palmolive may be headed for trouble in its biggest geographical market by revenue share, Latin America.

Heavy currency headwinds have forced the company to raise prices heavily in the region in the last few quarters. In turn, the price upticks may have driven customers away to cheaper alternatives, resulting in a steady contraction in volume growth.

Colgate-Palmolive has been able to keep its volume growth in the black so far, but unless it finds a balance between price hikes and volume growth, that status quo may not hold for much longer.

Colgate-Palmolive reports geographical revenue share for its Oral, Personal and Home Care division only, and not for its Hill’s Pet Nutrition business. Hill’s Pet Nutrition is a secondary business for the company and accounted for just 14% of its total revenues in the second quarter of fiscal 2015.

Therefore, for the purpose of this report, we have considered the geographical revenue distribution of the Oral, Personal and Home Care division only.

Our price estimate of $61 for Colgate-Palmolive is nearly the same as its current market price.

year volume growth in Latin America has fallen from 5% in fiscal 2013 to a mere 0.5% in the last quarter. Notably, the pace of volume growth declined in each quarter since the beginning of fiscal 2014, with the sole exception of the first quarter of fiscal 2014.

This suggests that Colgate-Palmolive may have been relying almost completely on price hikes to offset the substantial drag on revenues from adverse currency movements.