Colgate-Palmolive (CL) Q3 2025: 150bps Latin America Drag Highlights Innovation and Market Reset
Colgate-Palmolive’s third quarter revealed sluggish category growth and operational headwinds, with a 150 basis point organic sales drag from formula changes in Latin America exposing the company’s reliance on innovation to offset market volatility. Management is doubling down on digital, AI, and premiumization, but persistent consumer uncertainty and cost inflation continue to test the resilience of its global portfolio. The 2030 strategy rollout and productivity program signal a pivot to faster, tech-driven adaptation amid ongoing macro and competitive pressures.
Summary
- Innovation-Driven Reset: Formula adjustments and premium launches are reshaping regional performance and margin structure.
- AI and Productivity Emphasis: Strategic Growth and Productivity Program underpins an accelerated push into digital and operational agility.
- Margin and Volume Balance: Persistent cost inflation and trade destocking require careful pricing and channel management to sustain EPS growth.
Performance Analysis
Colgate-Palmolive’s Q3 2025 results reflect a challenging landscape, with organic growth hampered by category softness and operational disruptions, particularly in Latin America where a major Colgate Total formula change resulted in a 150 basis point drag on organic sales and a 40 to 50 basis point hit to gross margin. While Mexico and Brazil delivered mid-single digit growth, other regions like Colombia and Central America underperformed due to economic and political volatility. In North America, sequential improvement was noted, yet the region remains below internal targets, with skin health and value segments lagging.
Europe’s pricing environment stayed positive, but volume and competitive pressures persisted, especially in Eastern markets. Asia Pacific saw India’s results dip on GST-driven price resets and sluggish urban demand, while China’s Colgate business outperformed Darlie, which faces ongoing premium e-commerce challenges. Hill’s Pet Nutrition, pet care segment, managed broad-based growth ex-private label, but overall volume mix was pressured by e-commerce inventory reductions and a strategic exit from private label manufacturing.
- Latin America Formula Disruption: Colgate Total’s reformulation drove significant short-term sales and margin headwinds, with market share now recovering post-replacement.
- Category Growth Deceleration: Global category growth slowed to approximately 2 percent, down from 4 to 5 percent in 2024, with developed markets especially weak.
- Cost Inflation and Tariffs: Raw material inflation, especially palm oil, and incremental tariffs weighed on gross margin, partially offset by positive pricing in every division.
Despite these pressures, Colgate maintained strong cash flow and dollar-based EPS growth, leveraging portfolio strength and disciplined capital allocation to weather near-term volatility.
Executive Commentary
"We have healthy brands in growing categories for strong market shares and a diverse global footprint, with nearly 50% exposure to faster growth emerging markets and a best-in-class global supply chain to service that demand. We remain committed to our goals of delivering organic sales growth, net sales growth, and dollar-based EPS growth, and to our capital allocation priorities to drive total shareholder return towards the top end of our peer group."
Noel Wallace, Chairman, President, and Chief Executive Officer
"The strength of that business model enables us to weather the challenges that we had here in Q3 and still deliver bottom line dollar-based EPS growth. And we expect to be able to continue that here for this year... we're changing the way we work, not just slashing costs. So it's important that we're looking to design and allow the future fit for our organization, which aligns with our 2030 strategy."
Dan, (CFO, as referenced in transcript)
Strategic Positioning
1. Strategic Growth and Productivity Program (SGPP) as Change Enabler
SGPP, cost and capability transformation initiative, is central to Colgate’s 2030 strategy, providing both funding for incremental investments and a framework to accelerate organizational flexibility and digital integration. The program is not a cost-cutting exercise but a platform for process simplification, digital upskilling, and faster innovation cycles, with $200 million to $300 million in charges expected through 2028.
2. Premiumization and Innovation Model
Premiumization, shifting product mix toward higher-value tiers, is being driven by science-based innovation and robust marketing. The Colgate Total reformulation and new premium launches in oral care and pet nutrition aim to capture share in higher-margin segments, offsetting volume softness in value and mid-tier categories. The innovation model now prioritizes rapid concept validation and omnichannel readiness, leveraging AI and predictive analytics to target consumer moments and drive penetration.
3. Digital and AI Investment for Competitive Advantage
AI and digital, automation and analytics to optimize marketing, supply chain, and demand planning, are being scaled across the organization. Initiatives include agentic AI for process reengineering, generative AI for marketing content, and predictive analytics for supply chain personalization. These investments are designed to unlock productivity, improve return on advertising, and enable more dynamic, consumer-centric execution globally.
4. Regional Playbooks and Channel Management
Regional strategies, tailored to local demand and channel dynamics, are being refined. In North America, focus is on core innovation to stimulate demand in value and mid-tiers, while premium segments continue to grow. Latin America faces price competition and inventory resets, with targeted pricing and product adjustments underway. Asia’s recovery hinges on GST normalization in India and e-commerce innovation in China, particularly for Darlie and the H&H subsidiary.
Key Considerations
Colgate-Palmolive’s Q3 underscores the complexity of managing a global consumer portfolio amid shifting category growth, cost volatility, and channel disruption. The company’s operational flexibility and willingness to invest in technology and innovation are being tested by both macro and company-specific challenges.
Key Considerations:
- Formula-Driven Volatility: The Colgate Total reformulation in Latin America demonstrates both the risks of rapid innovation and the necessity of agile response to consumer feedback and regulatory scrutiny.
- Category Slowdown Persistence: Management expects sluggish category growth, especially in developed markets, to persist into 2026, requiring proactive demand generation and pricing discipline.
- AI as Differentiator: Early adoption of AI and predictive analytics is intended to move beyond industry table stakes, aiming for operational and marketing edge in efficiency and personalization.
- Channel and Mix Shifts: Weakness in drugstore and mid-tier channels, coupled with strong premium and e-commerce performance, necessitates ongoing portfolio and promotional recalibration.
- Emerging Market Exposure: Nearly half of sales from emerging markets provides growth potential, but also exposes the company to heightened currency, political, and economic risk.
Risks
Colgate faces ongoing risks from raw material inflation, especially in fast-moving oils like palm oil, and incremental tariffs that could pressure margins further. Persistent consumer uncertainty, competitive promotional intensity, and regional regulatory interventions (such as GST in India and formula adjustments in Latin America) pose additional challenges. The pace and impact of AI and digital investments, while promising, remain subject to execution risk and industry-wide adoption.
Forward Outlook
For Q4 2025, Colgate guided to:
- Organic sales growth roughly in line with the year-to-date pace (about 1.2 percent)
- Gross margin expected to be approximately 60 percent, in line with year-to-date average
For full-year 2025, management maintained guidance:
- Low single-digit net sales growth, including a flat to low single-digit negative FX impact
- Dollar-based EPS growth, supported by operational flexibility and cost discipline
Management highlighted several factors that will shape results:
- Normalization of inventory and formula-driven disruptions, especially in Latin America
- Continued investment in AI, innovation, and omnichannel capabilities to stimulate demand and improve productivity
Takeaways
Colgate’s 2030 strategy launch comes at a pivotal moment, as the company confronts both cyclical and structural headwinds in its core categories and geographies.
- Innovation and AI Investment: The emphasis on science-based product launches and digital transformation is essential to regain category momentum and margin expansion, but will require flawless execution to differentiate from peers.
- Regional Tailwinds and Headwinds: While emerging markets provide growth ballast, volatility in Latin America and Asia Pacific highlight the need for local agility and rapid response to regulatory and consumer shifts.
- Margin Resilience: Maintaining EPS growth amid cost and volume pressures depends on disciplined pricing, cost control, and continued productivity gains from the SGPP and digital initiatives.
Conclusion
Colgate-Palmolive’s Q3 2025 underscores the fragility of growth in a volatile global environment, but also the company’s determination to accelerate change through innovation, digital investment, and operational flexibility. The next several quarters will be critical in proving that the 2030 strategy and productivity program can deliver sustainable outperformance as macro and category headwinds persist.
Industry Read-Through
Colgate’s experience this quarter is emblematic of the broader consumer staples sector, where category growth deceleration, cost inflation, and channel disruption are forcing incumbents to double down on innovation and digital enablement. The rapid pivot to AI and automation, along with a focus on premiumization and omnichannel execution, are becoming non-negotiable for maintaining margin and share. Companies with exposure to emerging markets face both outsized opportunity and risk, as local volatility and regulatory shifts can quickly reshape performance. For industry peers, the quarter highlights the need for agility in innovation, disciplined capital allocation, and a willingness to rethink traditional playbooks amid persistent macro uncertainty.