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Jan 28, 2022

Colgate warns higher prices will scare away some shoppers

Inflation takes a bite out of growth, the economy, and companies: Colin Cieszynski


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Colgate-Palmolive Co., which sells products from dish soap and toothpaste to deodorant, said the recent wave of price hikes on household goods will probably deter some buyers.

Like its peers, Colgate has started to charge more to deal with elevated raw materials and logistics costs, and it’s now watching for shoppers’ reaction. Given the magnitude of the price hikes, “you will see a fall off in volume,” Chief Executive Officer Noel Wallace said Friday during the company’s fourth-quarter conference call. 

Since price increases are broad-based across the industry, Colgate expects the reaction won’t be as sharp as it normally would be. The company’s organic sales, which strips out currency swings, grew 3 per cent in the fourth quarter -- but the volume of products sold was flat compared to a year earlier.

U.S. consumer spending, after adjusting for inflation, declined last month by the most since February. This suggests Americans are pulling back amid a renewed COVID-19 spike and the highest inflation in nearly 40 years. Companies are likely to still see revenue climb -- but the growth will come from higher prices instead of more units being sold. 

Colgate’s North America organic sales fell 1.5 per cent in the quarter as demand for categories such as personal and home care, which had benefited from pandemic trends, declined from 2020. Those businesses include fabric softener Suavitel, Softsoap hand-and-body cleansers and Tom’s, which makes toothpaste, deodorant and body washes. 


Looking ahead, “volume risk is a focus” amid price hikes scheduled to take effect in the second quarter, Bloomberg Intelligence analysts Diana Gomes and Deborah Aitken wrote in a research note following the release. This concern is especially acute in emerging markets including Latin America, Gomes and Aitken said. 

Church & Dwight reported a similar trend, saying Friday that while its global fourth-quarter organic sales growth exceeded its outlook, that was due to higher prices. Volume dipped 1.7 per cent. 

Colgate plans on spending as much as US$240 million before taxes to streamline its supply chain and reduce costs. It’s expected to save as much as US$110 million annually, with the benefits starting to be observed in the second half of the year. The company will also try to retain consumers by making its products more appealing and introducing new ones. 

Colgate shares fell 1 per cent at 2:37 p.m. in New York trading. The stock had climbed 6 per cent in the 12 months through Thursday, below the 16 per cent gain for the S&P 500 Consumer Staples Index. Church & Dwight shares rose 3.4 per cent Friday; the stock had gained 12 per cent in the year through Thursday.