🪥 Colgate's fresh issue

What’s going on here?

Colgate-Palmolive delivered some, uh, sparkly white earnings, but that might not be enough to keep investors interested.

What does this mean?

Colgate’s been eking what it can out of rising costs and a pricier shopping basket. Even with inflation squeezing consumers and sending material and packaging costs climbing, the toiletry giant prioritized its essential goods and used savvy pricing strategies to smoothly pass on cost increases to customers. That bumped its third-quarter profit margins to around 61%. Unlike competitors such as Kimberly-Clark, which is losing ground to budget brands, Colgate’s ad spending kept its products shining, while its Hill's pet nutrition brand opened new streams for growth. With sales expected to climb 3-5% and profits up 10-11% in 2024, Colgate’s third quarter beat expectations. The company also lifted its full-year 2024 forecast higher. There was one concerning point, though: growth in North America slowed by more than expected.

Why should I care?

For markets: Good, but not good enough

Colgate’s stock dipped post-earnings, highlighting the high bar consumer staples must clear in today’s market. Don’t get it wrong, the firm has performed well over the past year, benefiting from the consistent demand for essentials. But strong investor interest – driven by the feeling that the US economy was moving from “very good” to “just alright” – has pushed stock valuations for defensive companies like Colgate way up. Not meme-stock expensive, but high relative to the growth they can deliver. So, in the past two months, when the economy started to perk back up, investors dumped their toothpaste and laundry detergent to chase stocks with higher growth potential – especially since those bathroom cupboard brands didn’t provide an attractive entry point anymore. Other investors high-tailed it to bonds as a safer, higher-yield option – thanks to today’s loftier interest rates. The message here seems crystal clear: as long as the economy remains strong, staples like Colgate will need to do more than just “good enough” to win back investors.

What’s going on here?

Germany’s business outlook brightened a bit this month, according to a new survey, fueling hopes that Europe’s biggest economy might finally be finding its footing.

What does this mean?

The Ifo Institute’s business climate index hit its highest mark since June this month, which points to a little more confidence among firms. Although the manufacturing sector is still downbeat, the services sector – led by tourism, IT, and logistics – has started picking up pace. But the skies aren’t all sunshiney: the country’s central bank expects economic growth to flatline again in the fourth quarter as cautious consumers and pesky global uncertainty keep it in check.

Why should I care?

For markets: Adapt or fail.

Germany’s auto industry – once its crown jewel – is now the poster child for the country’s struggle to keep up. Traditional heavyweights like Mercedes and Volkswagen are finding the shift to EVs isn’t just costly, but also requires a complete change of gears for their business models. Tough competition from China and strict green regulations are only making matters worse, exposing faults in this decades-old jalopy. Mind you, it’s not just the auto industry that’s stalling: a look under the hood of Germany’s economy reveals a tech and sustainability engine that’s in dire need of service too.

The bigger picture: Roundabouts.

Germany and France have been Europe’s hard-driving powerhouses forever. But now both are wrestling with slower economic growth and rising government expenses. In both countries, aging populations are slowing economic output, while amping up healthcare and support costs. And that’s coming as global trade tensions rise, threatening their industries. No wonder the economic focus has shifted to southern Europe. Spain and Greece are now living the good life, enjoying healthy economic growth, thanks to booming tourism and rising foreign investment. All that and nicer winters too.