Colgate-Palmolive (CL) Q4 2025 earnings review
Emerging Markets Rescue the Quarter; Skin Health Impairment Hits Hard
Colgate-Palmolive ended 2025 with a mixed report. Top-line momentum accelerated sequentially, driven by a V-shaped recovery in Latin America and resilient demand at Hill's Pet Nutrition. Organic sales rose 2.2%, bouncing back from a weak Q3. However, North America remains a significant drag (-1.5% organic), and the company took a massive $794 million impairment charge on its Skin Health business (Filorga), pushing GAAP EPS to a loss of $0.05. While cash flow hit a record $4.2 billion, the divergence between strong emerging markets and a struggling North America/China business defines the current narrative.
🐂 Bull Case
After a formula issue caused a stumble in Q3 (+1.7%), Latin America roared back with +12.8% organic growth in Q4. Volume grew 6.5% and pricing added 6.3%, proving the brand damage was temporary and pricing power remains intact.
Operating cash flow reached a record $4.2 billion for the full year. This capital strength supports the $2.9 billion returned to shareholders via dividends and buybacks and provides a buffer against macro volatility.
🐻 Bear Case
The home market is deteriorating. North America organic sales fell 1.5% with volumes down 2.3%. While peers are seeing stabilization, Colgate is seeing volume erosion in its most profitable region.
The $794 million impairment charge related to Skin Health (Filorga) admits that the premium skincare strategy, particularly in China, is failing to meet expectations. This segment has turned from a growth hope into a capital destroyer.
⚖️ Verdict: ⚪
Neutral. The recovery in organic growth (led by LatAm) and strong cash flow are positives, but the structural weakness in North America and the admission of failure in Skin Health (via impairment) cap the upside. FY26 guidance is steady but unexciting.
Key Themes
Massive Skin Health Impairment
Management booked a $794 million after-tax non-cash charge to write down goodwill on its Skin Health business (Filorga). This pushed GAAP EPS to a loss of $(0.05). The company cited 'lower than expected category growth' and weakness in China. This confirms that the diversification into premium skin care is struggling significantly.
North America Volume Erosion
Decelerating. North America posted -1.5% organic sales and -2.3% volume. This is a deterioration from Q3 (where volume was flat/down slightly). Management previously cited 'cautious consumers,' but a 2.3% volume drop suggests competitive share loss or significant category contraction that Colgate is failing to offset.
Latin America Rebounds Aggressively
Accelerating. LatAm was the star performer, delivering +12.8% organic growth (vs +1.7% in Q3). The Q3 dip caused by a formula/flavor issue appears resolved. Importantly, this growth was balanced: +6.5% volume and +6.3% price, driving a 6% increase in operating profit despite currency headwinds.
Hill's Pet Nutrition Momentum
Stable/Accelerating. Hill's organic sales grew 4.9%, an improvement from recent quarters, driven by 1.5% volume growth and 3.0% pricing. This performance comes despite the ongoing drag from exiting private label businesses (which impacted reported volume by 1.8%). Excluding the private label exit, underlying volume growth is even stronger.
Gross Margin Stagnation
Stable. GAAP Gross margin was 60.2%, down 10 basis points YoY. While not a collapse, the lack of expansion suggests that pricing actions and productivity savings are barely keeping pace with raw material costs and negative mix shifts (likely from North America weakness). FY26 guidance calls for expansion, but Q4 didn't show it.
Europe Volume Growth
Accelerating. Europe surprised to the upside with +9.8% organic growth, driven primarily by strong pricing (+8.1%) and positive volume (+1.8%). Operating profit in the region jumped 17%, indicating strong execution in a typically slow-growth market.
Other KPIs
Adjusted EPS grew 4% YoY, hitting the beat vs GAAP loss. However, this growth is relatively modest compared to the 12.8% sales surge in LatAm, dampened by the 91% drop in GAAP operating profit due to impairment.
A record year for cash generation, up from $4.1B in FY24. This conversion remains the company's strongest financial trait, allowing for $2.9B in shareholder returns despite P&L volatility.
Decelerating/Stagnant. Volume was flat (+0.1%) and pricing was negative (-2.2%), offset by FX. The region remains a drag, likely due to the China weakness mentioned in the Skin Health write-down.
Guidance
Accelerating. The midpoint (4%) implies an improvement over FY25's +1.4% reported growth. Assumes low-single-digit FX tailwinds.
Stable. The range brackets the 2.2% achieved in Q4. Includes a ~20bps drag from the private label pet food exit. This suggests no major V-shaped recovery in North America or Asia is priced in.
Stable. Consistent with FY25's +3% growth. Management expects gross margin expansion to drive this, helping cover increased advertising investment.
Improving. Management guides for expansion on both GAAP and Base basis, suggesting they expect raw material headwinds to ease or productivity programs (SGPP) to gain traction.
Key Questions
North America Turnaround Timeline
North America volume degraded to -2.3% in Q4. Is this purely category weakness, or are we losing share to competitors/private label? When do you expect volume to turn positive?
Skin Health Viability
Given the massive $794M impairment and 'lower outlook' for Filorga, is the company considering divesting these assets, or is there a specific plan to stabilize the business in China?
LatAm Volatility
LatAm swung from +1.7% organic in Q3 to +12.8% in Q4. Can you decompose how much of Q4 was 'refilling the channel' after the Q3 formula issues versus true underlying demand growth?
Pricing Power in 2026
Asia Pacific saw negative pricing (-2.2%) in Q4. With inflation cooling, are you seeing a need to increase promotional intensity globally to defend volume, particularly in North America and Asia?
Gross Margin Bridge
Q4 Gross Margins were down 10 bps YoY. What gives you confidence in forecasting margin expansion for FY26 given the current lack of momentum?