We Don't Think Colgate at Risk of Decay, Despite Facing Pronounced Headwinds; Shares Not Attractive

Supply chain disruptions and striking inflation (across raw materials, transportation, packaging, and labor) continue to wreak havoc, and wide-moat Colgate is not immune. However, using fiscal 2021 marks as a guide, we’d suggest its brand prowess and cost edge are helping it persevere. In this context, Colgate chalked up 4.5% underlying sales growth (on top of robust 7% growth a year ago), driven by higher prices (3.5%) and stepped-up volumes (1%). And despite a 120-basis-point retreat in gross and operating margins to 59.6% and 22.3%, respectively, we don’t ascribe to the belief that Colgate is cracking under the weight of outsize cost pressure.