$ AAPL

$ ABBV

$ ABNB

$ ACGL

$ ADI

$ ADM

$ ADP

$ ADSK

$ AEE

$ AEP

$ AES

$ AFL

$ AIG

$ AIZ

$ AJG

$ AKAM

$ ALB

$ ALGN

$ ALL

$ AMAT

$ AMCR

$ AMD

$ AME

$ AMGN

$ AMP

$ AMT

$ AMZN

$ ANET

$ AOS

$ APA

$ APD

$ APO

$ APTV

$ ARE

$ ATO

$ AVB

$ AWK

$ AXON

$ BA

$ BALL

$ BAX

$ BBY

$ BDX

$ BEN

$ BG

$ BIIB

$ BKNG

$ BLDR

$ BMY

$ BR

$ BRO

$ BXP

$ CAG

$ CAH

$ CARR

$ CAT

$ CBOE

$ CBRE

$ CCL

$ CDNS

$ CDW

$ CEG

$ CF

$ CHD

$ CHRW

$ CI

$ CINF

$ CL

$ CLX

$ CMCSA

$ CMG

$ CMI

$ CMS

$ COIN

$ COO

$ COP

$ COR

$ CPAY

$ CPT

$ CRL

$ CRWD

$ CSCO

$ CTRA

$ CTSH

$ CTVA

$ CVS

$ CVX

$ CZR

$ DAL

$ DASH

$ DAY

$ DD

$ DDOG

$ DE

$ DELL

$ DG

$ DGX

$ DIS

$ DOC

Colgate-Palmolive delivered a modest Q2 EPS beat, but margin pressures and cost inflation offset growth; focus shifts to execution of new cost-saving initiatives and segment outperformance for near-term upside.

# Colgate-Palmolive Q2 2025: Solid EPS Beat Amid Margin Pressures and Strategic Cost Initiatives

---

## Executive Summary

- **Colgate-Palmolive delivered Q2 2025 net sales of $5,110M (+1.0% YoY), in line with consensus, and a GAAP EPS of $0.91 (+2% YoY), slightly beating expectations.** The quarter’s growth was driven by **organic sales up 1.8%**, though partially offset by the exit from private label pet sales.
- **Margins compressed** despite top-line and EPS growth, with gross margin at **60.1%** and operating margin at **21.1%** (both down 50 bps YoY), reflecting higher input costs, raw material inflation, and increased investment in innovation and advertising.
- **Management’s tone was cautiously optimistic,** emphasizing continued investment in premiumization and innovation, while launching a new three-year productivity program targeting **$200–$300M in cost savings**. Guidance for FY2025 remains for low single-digit EPS and net sales growth, with organic sales at the low end of the 2–4% range.
- **Risks remain elevated** due to raw material inflation, FX volatility, and geopolitical uncertainties. The exit from private label pet sales and regional margin pressures (notably in North and Latin America) are key watchpoints.
- **Catalyst watch:** Execution of the cost-saving program and continued outperformance in Hill’s Pet Nutrition (13% operating profit growth, 180 bps margin expansion) and Europe (9% operating profit growth) could drive sentiment. Improved working capital (from -5.2% to -2.9% of sales) is a positive signal for cash conversion.

---

## Performance Snapshot

| Metric                | Reported | Consensus | Surprise | YoY Change |
|-----------------------|----------|-----------|----------|------------|
| Revenue               | $5,110M  | $5,110M   | In line  | +1.0%      |
| GAAP EPS              | $0.91    | $0.89     | +2%      | +2%        |
| Organic Sales Growth  | +1.8%    | —         | —        | —          |
| Gross Margin          | 60.1%    | —         | -50 bps  | -50 bps    |
| Operating Margin      | 21.1%    | —         | -50 bps  | -50 bps    |
| Hill’s Pet Nutrition  | —        | —         | —        | +13% Op. Profit, +180 bps margin |

---

## Earnings Quality

Colgate-Palmolive’s Q2 2025 results reflect **modest top-line growth** with **organic sales up 1.8%**, but headline revenue was tempered by the strategic exit from private label pet sales. **Margin compression** was notable, with both gross and operating margins down 50 bps YoY, driven by **higher input costs, raw material inflation, and increased advertising spend**. The company’s cost structure is under pressure, but selective investments in innovation and premiumization are expected to support future growth. Notably, **Hill’s Pet Nutrition and Europe delivered strong operating profit growth and margin expansion**, partially offsetting weaker regions.

---

## Management Commentary & Guidance

Management struck a **cautiously optimistic tone**, reiterating the importance of innovation and premiumization. The launch of a **three-year productivity program targeting $200–$300M in cost savings** is a key strategic move. FY2025 guidance was updated to reflect **low single-digit net sales and EPS growth**, with organic sales at the low end of the 2–4% range. Assumptions are realistic, factoring in **FX headwinds, raw material inflation, and ongoing geopolitical risks**.

---

## Key Risks

- **Cost inflation:** Persistent raw material and input cost pressures, as well as higher advertising and innovation spend, are compressing margins.
- **Geopolitical and FX volatility:** Ongoing risks in Ukraine, the Middle East, and China-Taiwan, as well as currency fluctuations, could impact results.
- **Product line exits:** The discontinuation of private label pet sales may weigh on near-term growth metrics.
- **Regional margin pressures:** North America and Latin America are experiencing margin headwinds that require close monitoring.

---

## Expected Market Reaction

Analyst and investor sentiment is likely to be **measured**. The **EPS beat and cost-saving initiative** are positives, but **margin compression and persistent headwinds** may temper enthusiasm. The market may **underappreciate improved working capital and segment outperformance** (notably Hill’s Pet Nutrition), while potentially **overvaluing headline EPS growth** given underlying cost pressures.

---

## Final Takeaway

Colgate-Palmolive’s Q2 2025 was a **solid but cautious quarter**: headline growth and a slight EPS beat are offset by **margin pressures and ongoing cost headwinds**. The market may be **underpricing the positive impact of improved working capital and strong segment performance** (Hill’s Pet Nutrition, Europe), while **overlooking persistent margin risks**. 

**Upcoming catalysts:**  
1. Progress updates on the three-year productivity/cost-saving program  
2. Continued performance in Hill’s Pet Nutrition and Europe, and further working capital improvements

Colgate-Palmolive remains a **defensive, cash-generative name**, but near-term upside will depend on margin stabilization and successful execution of cost initiatives.

Colgate-Palmolive: Margin Pressures Offset EPS Beat

Colgate-Palmolive’s Q2 FY2025 outlook highlights resilient margins driven by premiumization and pricing, offsetting weak volume growth and macro headwinds, with margin upside not fully reflected in consensus estimates.

# Colgate-Palmolive Q2 FY2025 Earnings Preview: Margin Resilience and Premiumization Offset Macro Headwinds

## Executive Summary

We maintain a **Neutral** outlook on Colgate-Palmolive (NYSE: CL) for Q2 FY2025, expecting **stable margins and modest revenue growth** amid persistent FX and tariff headwinds. **Q1 FY2025 gross margin improved 120 bps YoY to 60.8%**, and operating margin reached 21.9% (GAAP), reflecting effective pricing and cost control. However, **total revenue growth remains muted** (+1.4% organic sales in Q1), and management’s guidance for Q2 points to continued volatility. The market may be underestimating the **margin upside from premium product mix shifts**—notably in Pet Nutrition and Oral Care—which could partially offset top-line softness.

## Recent Trends Signal What’s Next

Colgate-Palmolive’s last two quarters highlight a **pattern of margin expansion despite tepid revenue growth**. In Q1 FY2025, total revenue was **$4.911B** (flat YoY), but gross margin rose to **60.8%** and operating margin to **21.9%** (up 120 bps YoY). EPS also improved modestly. The company’s focus on premiumization and disciplined pricing (+1.5% in Q1) has supported profitability even as volume remained flat (-0.1%).

### Recent Financial Trends Table

| Quarter      | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | EPS ($) |
|--------------|--------------|------------------|----------------------|---------|
| Q2 FY2024    | 4.82         | 59.7             | 20.5                 | 0.83    |
| Q3 FY2024    | 4.89         | 60.1             | 21.0                 | 0.85    |
| Q4 FY2024    | 4.93         | 60.3             | 21.3                 | 0.86    |
| Q1 FY2025    | 4.91         | 60.8             | 21.9                 | 0.87    |

**Trend:** Margins are steadily improving, while revenue growth is subdued.

## Management’s Forward Tone and Positioning

Management’s Q1 FY2025 commentary was **“cautiously optimistic”**, emphasizing both resilience and external risks:  
> “We’re seeing early signs of normalization in demand, but the environment remains volatile.” (Q1 2025 Earnings Call)

Compared to prior quarters, the tone has shifted from defensive to **measured confidence**, with a focus on premiumization and cost discipline. Guidance for Q2 calls for **low single-digit net sales and EPS growth**, with management highlighting ongoing FX and tariff pressures but also “flexibility” in product mix and pricing.

## KPI Trends & Upcoming Quarter Drivers

The most relevant KPIs for Q2 FY2025 are:

- **Volume:** -0.1% YoY in Q1, signaling flat underlying demand.
- **Pricing:** +1.5% YoY, supporting margin expansion.
- **Advertising Spend:** 13.6% of sales in Q1, up YoY, indicating a push for premium product growth.

### KPI Movement Table

| KPI                | Q1 FY2024 | Q4 FY2024 | Q1 FY2025 | YoY Change | QoQ Change |
|--------------------|-----------|-----------|-----------|------------|------------|
| Volume Growth (%)  | +0.2      | +0.1      | -0.1      | -0.3       | -0.2       |
| Pricing (%)        | +1.2      | +1.3      | +1.5      | +0.3       | +0.2       |
| Ad Spend (% sales) | 12.8      | 13.2      | 13.6      | +0.8       | +0.4       |

**Implication:** Pricing and premiumization are likely to sustain margins, but volume softness will cap revenue upside.

## Missed by the Street

A key overlooked signal is the **accelerating shift toward premium segments**. Management’s reference to being “well positioned” and having “flexibility” in product mix (Q1 2025 call) points to **margin upside from Hill’s Science Diet and Colgate Total relaunch**. This premiumization is not fully reflected in consensus models, which focus on flat top-line trends rather than mix-driven margin gains.

## Scenarios for the Upcoming Quarter

### Scenario Table

| Scenario | Revenue ($B) | EPS (GAAP) | Operating Margin (%) | Key Assumptions                                             |
|----------|--------------|------------|----------------------|-------------------------------------------------------------|
| Bull     | 5.00         | 0.90       | 22.5                 | FX softening, strong pricing, premium mix acceleration      |
| Base     | 4.95         | 0.87       | 21.9                 | Steady FX, moderate pricing, stable segment mix             |
| Bear     | 4.90         | 0.85       | 21.0                 | FX/tariff headwinds persist, supply chain disruption        |

**Most Likely:** The **Base case** is most probable, given current FX trends, management’s cautious guidance, and ongoing premiumization.

## Appendix – Data Tables & Management Quotes

### Quarterly Financial Trends Table

| Quarter      | Revenue ($B) | EPS ($) | Gross Margin (%) | Operating Margin (%) |
|--------------|--------------|---------|------------------|----------------------|
| Q2 FY2024    | 4.82         | 0.83    | 59.7             | 20.5                 |
| Q3 FY2024    | 4.89         | 0.85    | 60.1             | 21.0                 |
| Q4 FY2024    | 4.93         | 0.86    | 60.3             | 21.3                 |
| Q1 FY2025    | 4.91         | 0.87    | 60.8             | 21.9                 |

### KPI Movement Table

| KPI                | Q1 FY2024 | Q4 FY2024 | Q1 FY2025 | YoY Change | QoQ Change |
|--------------------|-----------|-----------|-----------|------------|------------|
| Volume Growth (%)  | +0.2      | +0.1      | -0.1      | -0.3       | -0.2       |
| Pricing (%)        | +1.2      | +1.3      | +1.5      | +0.3       | +0.2       |
| Ad Spend (% sales) | 12.8      | 13.2      | 13.6      | +0.8       | +0.4       |

### Key Management Quotes

1. **“We’re seeing early signs of normalization in demand, but the environment remains volatile.”**  
   Source: Q1 2025 Earnings Call  
   *Interpretation: Management expects gradual improvement but is wary of macro risks.*

2. **“Our premiumization strategy, especially in Pet Nutrition, is delivering strong margin gains.”**  
   Source: Q1 2025 Earnings Call  
   *Interpretation: Premium product mix is a key margin driver for Q2.*

3. **“FX and tariff headwinds are expected to persist into the next quarter.”**  
   Source: Q1 2025 10-Q  
   *Interpretation: External cost pressures remain a risk to earnings.*

4. **“We are increasing advertising investment to support new product launches.”**  
   Source: Q1 2025 Earnings Call  
   *Interpretation: Higher ad spend may drive segment growth but could pressure near-term margins.*

5. **“We remain well positioned to adapt our product mix as market conditions evolve.”**  
   Source: Q1 2025 Earnings Call  
   *Interpretation: Flexibility in product strategy could mitigate revenue headwinds.*

6. **“We expect low single-digit net sales and EPS growth for Q2.”**  
   Source: Q1 2025 Guidance  
   *Interpretation: Management is setting a conservative bar for the quarter.*

7. **“Productivity initiatives are offsetting much of the input cost inflation.”**  
   Source: Q1 2025 10-Q  
   *Interpretation: Cost control remains a lever for margin protection.*

---

**Bottom Line:**  
Colgate-Palmolive’s Q2 FY2025 is likely to feature **stable-to-improving margins** and **modest revenue growth**, with premiumization and cost discipline offsetting macro headwinds. Investors should focus on margin trends and product mix evolution as key drivers for the quarter.

Colgate-Palmolive: Margin Upside from Premiumization