Colgate Earnings: Despite the Return of Gross Margin Gains, Cost Pressures Have Yet to Surrender

Wide-moat Colgate has been unrelenting in its pursuit to blunt inflation’s wrath, the fruits of which manifested in an 80-basis-point bump in gross margin to 57.8% in the second quarter. But cost pressures (a 540-basis-point hit to gross margin) show little sign of abating (particularly agricultural commodities required for Hill’s pet food). As such, we expect Colgate will keep boosting prices (a 450-basis-point margin benefit) and extracting costs to rebuild profits and unearth funds to reinvest in its business.