The recent devaluation of the Venezuelan currency, plus, an average fourth quarter aren’t good signs for Colgate-Palmolive Company (NYSE:CL). With strong competition from peers such as The Procter & Gamble Company (NYSE:PG) and Unilever N.V. (ADR) (NYSE:UL), the big question remains the same—what’s in store for the company in 2013?
Venezuela accounts for more than 5% of Colgate-Palmolive’s total revenue. Due to ongoing economic and labor issues in Venezuela, Colgate-Palmolive’s South American region hasn’t done that well lately. As a result of recent devaluation of Venezuelan Bolivar by 32%, Colgate-Palmolive Company (NYSE:CL) expects to report a one-time loss of $120 million, or $0.25 per share in 1Q13. The company’s earnings-per-share are estimated to fall by $0.05 to $0.07 in the quarter.
Quarterly earnings
In 4Q12, Colgate-Palmolive Company (NYSE:CL) reported earnings of $598 million or $1.26 per share, up from $590 million or $1.21 per share in the same quarter last year. Revenue grew 2.5% to $4.29 billion, missing analysts’ estimates of $4.31 billion. Prices were up 2.5%, while sales volume grew by 1.5%.
Organic sales grew by 4% in the recent quarter, compared to a growth of 5% and 8% in the third and second quarter respectively. Latin America, which constitutes about 29% of the company’s total sales, saw an organic sales growth of just 4% in the fourth quarter, compared to a 9% increase in the third and 14.5% increase in the fourth quarter of 2011. The chief reason behind this was a tough economic and labor environment in Venezuela, which had a negative effect on both sales and profits.
Forecast for 2013
In the next quarter, analysts expect Colgate-Palmolive to earn $1.32 per share on revenues of $4.3 billion. For the full year, the company is expected to earn $5.73 per share on $17.79 billion revenue.
Colgate-Palmolive Company (NYSE:CL) is trading at a forward P/E (1yr) of 18.25x, which shows that it’s an expensive buy in the fast-moving consumer goods (FMCG) sector. It has a PEG of 2.07 and a dividend yield of 2.20%. According to the sell side, it has a mean target price of $114, suggesting that it’s trading at its fair value and doesn’t have any upside potential at this stage. A mean recommendation of 2.8 on the sell side also shows that it isn’t an attractive buy.
Industry’s major players
The American FMCG company, The Procter & Gamble Company (NYSE:PG), is trading at a forward P/E (1yr) of 17.63x and has a PEG of 2.38. Incorporating a dividend yield of 2.90% in its PEG gives us a PEGY of 1.7. A mean recommendation of 2.2 on the sell side indicates that Procter & Gamble is one of the top buys in the FMCG sector. Using earnings estimates, I value The Procter & Gamble Company (NYSE:PG) at $85, showing an upside potential of 11%. This makes it one of the most attractive stocks in the industry and a must-buy. You can have a further look at my detailed take on Procter & Gamble here.
On the other hand, Unilever N.V. (ADR) (NYSE:UL), has recently announced that it would be investing 50 million Euros in order to set up a deodorant plant in India. The plant would be built in the Indian state of Maharashtra and would cater to rising demand in South East Asian countries. Unilever N.V. (ADR) (NYSE:UL) has been keen on focusing more on emerging markets such as Latin America and Asia, where the company saw 10% growth last year. In 2013, analysts expect Unilever N.V. (ADR) (NYSE:UL) to earn $2.33 per share on revenue of $70.29 billion. A mean recommendation of 2.7 on the sell side shows that it isn’t as attractive as Procter & Gamble.
Conclusion
In South America, Colgate-Palmolive Company (NYSE:CL) is still the market leader in toothpastes and toothbrushes, but it has recently faced tough competition from The Procter & Gamble Company (NYSE:PG). As the company dealt successfully with a recent labor slowdown at one of its major units, production levels are expected to remain stable in 2013. However, the devaluation in the Venezuelan currency is bound to have a significant effect on the company’s profits. Thus, 2013 doesn’t look that bright for the FMCG giant. In short, I still remain neutral on Colgate-Palmolive Company (NYSE:CL) in the short run.
The article Dissecting This FMCG Giant originally appeared on Fool.com and is written by Waqar Saif.
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