When Colgate-Palmolive reports third-quarter results on Friday, analysts at RBC Capital Markets expect the numbers to land roughly in line with Wall Street's forecasts. But the firm's latest note makes clear that the bigger story hasn't changed: demand in the United States remains soft, and the company's path to recovery could take years.
In a Wednesday research note, RBC said North America continues to be a near-term drag on Colgate's growth. The firm described management's efforts to steady the business as a “strategic reset” that could take three to five years to play out. That's a long runway for investors who are used to consumer staples stocks delivering steady, predictable gains.
Emerging markets to carry the load
With the US market struggling, RBC expects Colgate to lean more heavily on emerging markets to generate organic sales growth. These regions, where Colgate sells toothpaste, soap, and other household products, have historically been a source of strength for the company. But relying on them more means the overall growth mix becomes less balanced, and any slowdown in those markets would hit the company harder.
The firm's checks also pointed to weakness in pet nutrition, a smaller but closely watched segment for Colgate. As households tighten budgets amid persistent inflation, discretionary spending on premium pet food and treats has come under pressure. That's a familiar theme across consumer goods, but it's particularly notable for Colgate because pet nutrition was seen as a growth driver.
Cost pressures and currency headwinds
Even if near-term sales hold up, RBC warns that management is bracing for higher raw-material and tariff costs in the second half of the year. These input costs can squeeze profit margins, especially if the company can't pass them on to consumers through price increases without losing market share.
Looking further out, RBC also flagged that recent foreign-exchange moves could become a bigger earnings headwind by 2027. A stronger US dollar reduces the value of overseas profits when they're converted back into dollars, which can weigh on reported earnings per share even if underlying sales growth looks fine.
RBC kept its price target on Colgate at $104, but the note's tone suggests caution. The firm is essentially saying that the debate isn't about next quarter's sales—it's about how durable Colgate's earnings are a few years down the road.
What it means for investors
For everyday investors, this preview highlights a few key points. First, an “inline” quarter isn't necessarily a reason to celebrate if the underlying trends are soft. Second, cost pressures and currency swings can erode profits even when a company meets sales expectations.
When analysts spend more time talking about second-half input costs and a potential 2027 currency drag, they're signaling that the risk isn't a single bad quarter—it's a slow drip of small cuts to earnings estimates over time. That can cap how richly the market values the stock, even if the company keeps posting steady results.
For a consumer staples company like Colgate, investors often look for stability and reliable dividends. But if growth is sluggish in the US and costs are rising, the stock may not command the same premium valuation it once did. The key things to watch in Friday's report will be any updates on US demand, pricing power, and management's outlook for the rest of the year.
As always, it's important to remember that analyst notes are just one perspective. Colgate's management may have a different view, and the actual results could surprise. But for now, the setup looks familiar: stable today, with more pressure building underneath.
