Colgate-Palmolive Q3 net jumps 74.5 pc; ad spends down

Colgate-Palmolive’s top line growth is modest, but the margins have been maintained by cutting staff cost and ad spends, say analysts

e4m by Dipali Banka
Published: Jan 24, 2012 7:20 AM  | 2 min read
Colgate-Palmolive Q3 net jumps 74.5 pc; ad spends down

Colgate-Palmolive (India) has reported a growth of 74.5 per cent in its net profit for the third quarter ended December 31, 2011, as compared to last year, at Rs 1.15 billion. However, the advertising and sales promotion (A&P) spends of the company fell by 10.8 per cent from Rs 1,205.9 million in Q3 FY11 to Rs 1,074.9 million this year. Even when compared to the previous quarter (Q2 FY12), the A&P spends were down 6 per cent.

According to analysts, the reduction in advertising and promotion spends was a natural step for most of the FMCG companies, given the huge pressure on their profit margins because of increase in raw material costs. “Colgate-Palmolive’s top line growth is modest, but the margins have been maintained by cutting staff cost and ad spends. They are still under raw material pressure,” said Sreekanth PVS, Research Associate - FMCG & Media, Angel Broking. The company reported 20 per cent increase in net sales at Rs 6.69 billion.

The company rolled out its annual national awareness programme – ‘Oral Health Month’ (OHM) spread over two months, December 2011 and January 2012 – in association with the Indian Dental Association (IDA). The company usually increases its advertising and promotion spends more during this programme. Unlike last year, when the programme was entirely done in the third quarter, this time, part of the spending would be taken in the fourth quarter, said an analyst who did not wish to be quoted. He also said that if one looked at y-o-y basis, Colgate-Palmolive will maintain its ad spends range of 15-16 per cent of net sales annually.

“Important thing to really keep in mind is that when you are comparing on y-o-y basis, what will happen is Colgate’s Q4 A&P spends will actually be higher than Q4 FY11. So, I would not really say that they are really cutting A&P spends or something. On a full year basis, they will still be spending about 15-odd per cent of net sales,” he said.

Colgate-Palmolive today claims to enjoy a market share of 52.5 per cent (Dec 2010-Nov 2011), but the category competition is likely to intensify with P&G’s likely launch of Oral-B and Crest toothpaste and GSK Consumer’s aggressive stance on Aquafresh brand.

Colgate-Palmolive is in process of setting up a new toothpaste manufacturing facility in Sanand, Gujarat.

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