February 13, 2019

Breakingviews: P&G offers roadmap for new Colgate CEO

by Breakingviews.

Colgate-Palmolive’s new Chief Executive Noel Wallace might want to glance at Procter & Gamble’s to-do list. He will take over in April at the $57 billion maker of Irish Spring soap and Speed Stick deodorant. Like incumbent Ian Cook, Wallace is a Colgate veteran, but he needs fresh ideas. His larger competitor has found some.

Big consumer goods companies have suffered from changing customer tastes, price wars and rising costs, and the 213-year-old Colgate is no exception. Analysts expect the company’s top line to grow less than 1 percent this year and earnings to decline, according to estimates pooled by Refinitiv.

Peers have similar problems, yet Colgate’s stock has been hit harder. The company’s shares are down 6 percent in the past year, versus a 20 percent-plus increase at P&G and Clorox. Even Unilever has outperformed the flat S&P 500 Index’s consumer staples sector over 12 months. Colgate touts its market-beating 20-year total returns on its website. But over the past five years they have been going in the wrong direction.

One big problem is market share, which has been slipping in many of its businesses. Only 32 percent of its brands have gained share in the last 52 weeks, according to research from Jefferies. Meantime more than 60 percent of P&G’s portfolio has managed to grab sales from competitors.

Colgate recognizes it needs to reach more consumers – like those online – and has committed to spending more on new products and advertising. In January, for example, it launched a reboot of its Total toothpaste brand, which is one small step.

It’s worth remembering that P&G was until recently a bit flat-footed, too. Activist investor Nelson Peltz has helped stir the $246 billion giant into action, along the way getting himself on the board. Initiatives at P&G include overhauling the company’s divisions, making executives more accountable, and embracing online sales of razors to take on internet upstarts.

Such changes could be a wrench for Wallace after more than 30 years at Colgate. If he doesn’t think more like P&G, though, he may find an activist does it for him.


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