CL — Q2 2026 Financial Report Analysis

Overview

Colgate-Palmolive's second quarter of 2026 (the three months April 1 – June 30, 2026, reported July 31, 2026) had two stories pointing in opposite directions. Underneath, the business improved: sales rose 4.9% to $5,361 million, gross margin widened 140 basis points (1.40 percentage points) to 61.5%, and adjusted earnings per share rose 8% to $0.99. On the GAAP bottom line — the official accounting figure — profit fell: net income dropped 6.7% to $693 million and diluted EPS fell 5% to $0.86, because the quarter carried $129 million of pre-tax restructuring charges from the company's cost-cutting program that last year's quarter did not have.

Key figures

Organic sales growth strips out currency swings and acquisitions/divestments to show how much the existing business actually grew. "Base Business" is Colgate's own adjusted measure that excludes restructuring charges and similar items; it is not a GAAP figure.

Where the sales growth came from

Of the 4.9% headline increase, 2.4 points came from a weaker US dollar (foreign sales translate into more dollars), 1.6 points from higher prices and 0.9 points from selling more units. Stripping out currency and the small Prime100 pet-food acquisition leaves organic growth of 2.4%. Management said worldwide organic volume growth has now improved sequentially for three quarters in a row, and the filing attributes the organic gain primarily to Oral Care — toothpaste and manual toothbrushes. Colgate's year-to-date global toothpaste share was 41.3% (up 0.2 points) and manual toothbrush share 32.7% (up 0.6 points).

Growth was uneven by region:

• North America was the weak spot. Sales fell 3.0% on a 3.9% volume decline, driven by the United States. The 10-Q attributes it to lower toothpaste sales in Oral Care and lower bar soap and body wash sales in Personal Care. Even so, the division's operating profit rose 3% to $192 million because cost savings lifted its gross margin by 320 bps, more than covering a 260 bps rise in selling, general and administrative costs as a share of sales (200 bps of it advertising).
• Latin America's 13.7% looks bigger than it is. 8.4 points of it was currency. The underlying 5.3% organic growth, led by Mexico, Brazil and Argentina, is still the strongest of any division.
• Asia Pacific grew mostly on volume (+4.1%), driven by India, Greater China and the Philippines.
• Hill's grew on price, not volume. Pet-food volume fell 1.2%, and lower private-label pet food sales — a business Colgate is exiting — cut about 2 points from Hill's organic growth. Price increases of 3.9% carried the segment.

Margins: savings beat cost inflation — then advertising and restructuring absorbed it

Gross margin (the share of sales left after paying to make the products) rose to 61.5% from 60.1%. The 10-Q breaks this down: cost savings from Colgate's "funding-the-growth" efficiency programs added 280 bps, higher pricing 60 bps and better product mix 20 bps, while higher raw and packaging material costs — including the effect of tariffs, net of tariff refunds — subtracted 220 bps.

Colgate spent most of that gain on marketing. Advertising rose 14.6% to $777 million (14.5% of sales vs. 13.3%), and selling, general and administrative expenses rose to 39.7% of sales from 38.4%. That is why the adjusted operating margin (operating profit as a share of sales, i.e. what's left after all day-to-day running costs but before interest and tax) barely moved: 21.4% vs. 21.3%, despite the higher gross margin.

The reported operating margin fell 210 bps to 19.0% because of the Strategic Growth and Productivity Program, a restructuring plan approved in July 2025 and expanded on April 30, 2026. It cost $129 million pre-tax this quarter ($0.13 per share) and $300 million in the first half. Colgate now estimates total program charges of $350–550 million through 2028, with projected annual pre-tax savings of $200–300 million once fully implemented. Most of the charge sits in "Other (income) expense, net," which rose to $150 million from $26 million.

Takeaway: The GAAP EPS decline (-5%) comes from restructuring charges, not from a weaker business — adjusted operating profit rose 5% and adjusted EPS 8%. But the quarter's genuine weak spot is North America, where volume fell 3.9%. Colgate is paying for double-digit advertising increases with cost savings rather than with sales growth, and that works only as long as the savings keep coming.

Cash and balance sheet

Operating cash flow for the first six months was $1,742 million, up 17% from $1,484 million, helped by higher earnings excluding non-cash charges and working-capital changes. Free cash flow before dividends (operating cash minus capital spending) was $1,476 million vs. $1,252 million. Colgate paid $879 million in dividends and bought back $597 million of stock in the half. Net debt (debt minus cash and marketable securities) fell to $6,404 million from $7,346 million a year earlier.

Outlook

Management kept its 2026 sales guidance and raised its earnings guidance:

• Net sales up 2% to 6%, including a low-single-digit boost from currency (unchanged).
• Organic sales growth of 1% to 4%, including the drag from exiting private-label pet food (unchanged).
• Gross margin roughly flat on both a GAAP and Base Business basis (previously expected to decline).
• Base Business EPS growth in the mid-single digits (previously low- to mid-single digits); GAAP EPS growth still expected to be double-digit.
• Advertising up in dollars and as a percentage of sales.

The 10-Q adds a caution: management expects "softness across our categories to continue through the second half of 2026" and warns that consumers may trade down to private label or cheaper products. Our read: first-half organic growth was 2.6%, in the middle of the 1–4% range, so the sales guide looks realistic. The EPS upgrade depends mostly on cost savings covering the heavier advertising. In the second half, watch whether North American volume stabilizes. If US toothpaste and personal-care volume keep falling while advertising grows at double digits, the savings are covering a weak market rather than restoring growth.