Colgate-Palmolive Co (CL) (Q2 2026) Earnings Call Highlights: Strong Organic Growth and Margin ...

This article first appeared on GuruFocus.

Organic Sales Growth: Organic sales growth was reported in four of five divisions and three of four categories. Emerging Markets Sales: Sales in emerging markets were up mid-single digits, driven by India, Brazil, Mexico, and China. Free Cash Flow: Free cash flow increased 18% in the second quarter. Shareholder Returns: The company returned $1.4 billion to shareholders during the quarter. Advertising Investment: Advertising spending increased by a double-digit percentage. Gross Margin: Gross margin expanded solidly, before a modest tariff benefit. Earnings Per Share (EPS): Base business EPS came in ahead of expectations.

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Release Date: July 31, 2026

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Colgate-Palmolive Co (NYSE:CL) delivered strong top and bottom-line growth in Q2 2026, with organic sales growth in four of five divisions and three of four categories. Emerging markets led sales growth, up mid-single digits, driven by strong performances in India, Brazil, Mexico, and China. The Hill's Pet Nutrition business continues to outperform the category, delivering solid organic growth of 4% (ex-private label) despite a tough market, with strong performance in therapeutic, wet, cat, and small paws segments. Gross margin expanded by 100 basis points in the quarter, driven by core business initiatives, revenue growth management, and positive mix, leading to an increased full-year gross margin guidance to roughly flat. The company generated strong cash flow, with free cash flow up 18% and $1.4 billion returned to shareholders in the first half of the year. Colgate-Palmolive Co (NYSE:CL) is making significant strides in AI and digital capabilities, including scaling Promo AI tools and investing in data analytics, which is improving ROI on advertising and driving productivity.

Negative Points

The company expressed dissatisfaction with its US business performance, citing heightened competition, category softness, and inventory reductions from key retailers. North America shipments were down 3% versus consumption of 1%, indicating significant inventory destocking in the quarter. The pet category remains soft, with the US market roughly flat, and the company noted a decline in the dry dog food business due to a shift in pet ownership trends. Colgate-Palmolive Co (NYSE:CL) faces significant cost inflation and tariff pressures, with cost of goods expected to peak in the back half of the year, creating uncertainty for future margins. The company maintained its organic sales growth guidance despite a strong first half, citing global volatility, consumer uncertainty, and the impact of higher gasoline prices on consumer confidence. The company lost some market share in the US during the quarter, which contributed to the gap between tracked retail sales and reported results.

Story Continues

Q & A Highlights

Q: Can you provide perspective on the pet division's performance amid soft category dynamics, the sustainability of Hill's share gains, the ability to continue realizing pricing, and the plans for the Prime fresh food launch? A: Noel Wallace (Chairman, President, and CEO): Hill's delivered solid organic growth of 4% (excluding private label) in a tough market, well above the flat category. We grew in all segments except Science Diet dog, with strong performance in cat, wet, and small paws, and our therapeutic business continues to grow nicely from both volume and pricing. The category has likely bottomed out, but we expect continued pressure. Regarding Prime, we've learned a lot from the Australian launch, particularly around manufacturing fresh products. The US launch is anchored on single proteins with a science-driven, professionally-focused approach. We're not looking to generate significant volume right now but to build the brand and underscore the science-driven nature of the product, with a thoughtful, phased rollout through the balance of the year.

Q: Can you unpack the strength in gross margin, which was strong even after backing out tariff refunds, and walk through the phasing for the rest of the year given expectations for peak inflation? A: Noel Wallace (Chairman, President, and CEO): Gross margin was strong, up 100 basis points, with only a modest benefit from refunds. The bulk came from our core business initiatives, including revenue growth management, Promo AI tools, and funding the growth. We don't anticipate more refunds moving forward. We expect cost of goods to peak in the back half of this year along with tariffs. Stanley Sutula (CFO): Q3 is largely locked in line with guidance, while Q4 might be slightly lower given oil in the $90 range. We've raised our gross margin guidance to roughly flat for the year, up from down, driven by strong execution on margin components.

Q: How are you thinking about the balance between volume and price mix in the second half, particularly given strength in emerging markets? A: Noel Wallace (Chairman, President, and CEO): We got a lot of pricing in the first half and anticipate being more volume-driven in the back half. We see opportunities for volume growth, particularly internationally in big markets and on the premium side of the business. We're not anticipating categories will inflect differently in the back half and have assumed more or less sustained trends based on June and early July data. Our focus will be on executing new products, driving brand penetration, and delivering a balanced pricing-volume mix, slightly more towards volume.

Q: Can you provide an update on the Chinese market, the competitive dynamics, changes in shopping behavior, and the turnaround for Darlie and Colgate? A: Noel Wallace (Chairman, President, and CEO): China is a fascinating market, and we've had all our operating heads visit to learn from the innovation in go-to-market, particularly social media and B2C platforms. Our Colgate China business is consistently delivering mid-single-digit performance with good volume, despite disruption from platform shifts and aggressive competition. We're investing behind both Colgate and Darlie, with unique innovation like Optic White Purple, developed in China with a social-first model, now rolling out globally. Hawley & Hazel was up low single digits with good volume growth driven by B2C and dual-chamber innovation. We're not out of the woods yet, but we have exciting plans for the next six to nine months. The overall market is likely down 1%-2%, but we're executing above those numbers.

Q: Why not raise the lower end of the organic sales growth guidance given the strong first-half run rate, and how are you thinking about upside and downside scenarios? A: Noel Wallace (Chairman, President, and CEO): While we had a solid quarter, there are significant uncertainties in the world, including wars, consumer confidence impacts, and volatility in category growth. We saw a significant drop in North America categories in May, which rebounded in June but remains below historical numbers. Despite executing above market growth globally, we didn't want to get too far ahead of ourselves. We're shooting for higher numbers, but given the volatility and consumer uncertainty, particularly from higher gasoline prices, we felt it was prudent to maintain the current guidance. We'll revisit as we move through the back half.

Q: Can you elaborate on the US performance, the competitive environment, price points, and how comfortable you are with your positioning for the second half? A: Noel Wallace (Chairman, President, and CEO): We're disappointed with the North America second quarter, impacted by category softness in May, heightened competitive activity, and inventory reductions from key retailers. Consumption was roughly flat while shipments were down 3%, indicating noise from inventory. We're focused on actions we control: stepping up support for premium innovation like Optic White and Fabuloso extensions, addressing select price gaps in certain retailers and categories, and increasing advertising spend in the back half. We'll be thoughtful not to lead pricing down further. We expect sequential improvement through the back half, though not linear.

Q: What is driving the strong volume and pricing growth in Latin America, and how sustainable is this performance, especially as you lap the Colgate Total reformulation? A: Noel Wallace (Chairman, President, and CEO): Latin America was up about 5% with a good balance between pricing (up 2.8%) and volume (up 2.6%). Volume has bounced back over the last three quarters, helped by getting the Colgate Total issue behind us and rebuilding share. We have a strong innovation platform across core businesses in Brazil and Mexico, with Brazil up high single digits and Mexico up mid-single digits. All three categories were up, with oral care up high mid-single digits. Colgate Total shares are improving sequentially, particularly in Brazil. FX was a tailwind but volatile, and we don't expect the same tailwind in the second half, so we'll manage pricing and inflation carefully.

Q: Is the inventory reduction in North America a one-time event, and how do you manage the messaging for Hill's Prime fresh food versus the core dry food business? A: Noel Wallace (Chairman, President, and CEO): On inventory, retailers adjusted inventories as the market softened in May, and we haven't built into our numbers that they will reload. We're focused on driving consumption and top-line growth. On Prime, we're not entering emerging segments unless we can bring the brand platform to life. The single-protein idea promotes healthy digestion and overall health, integrated into the launch. We're going to the profession with a fresh alternative that consumers are asking for, building demand

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

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