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Morningstar | Despite external headwinds, Colgate proves steadfast in supporting its leading competitive edge.

Colgate chalked up tepid performance in 2017 (a 1% uptick in organic sales and flat margins) and through the first half of fiscal 2018 (registering 1% organic sales and 50 basis points of adjusted operating margin contraction to 25.5%), but we don't portend its competitive edge will show signs of decay. While headwinds have constrained its top line, we attribute a portion of the margin pressure to the firm's decision to boost ad spending, which we believe stands to support its leading brand mix and value-added innovation. Further, we surmise this spending entrenches Colgate's position with retailers and professionals (dentists, veterinarians, and dermatologists), supporting its wide moat. In our view, the success of these efforts is evidenced in that it continues to hold and even gain share in several of the markets, including Brazil (73% share) and Mexico (83%).And as a means to offset inflationary headwinds and unfavorable foreign exchange and fuel further brand spend, we believe management's stringent eye on driving efficiencies is prudent, targeting $500 million-$575 million in savings by the end of 2019, which equates to around 5% of cost of goods sold and operating expenses excluding depreciation and amortization. Management has also noted its intent to selectively raise prices (in line with recent rhetoric from peers), and while concern about the competitive landscape and the potential contraction in volumes that could ensue is valid, we posit Colgate is proactively taking steps to ensure its wide moat proves unwavering.In this vein, Colgate consistently brings new products to market tailored to win with local consumers around the world. In addition, we’re encouraged Colgate remains staunch in its reluctance to chase short-term promotional volumes, which we see as supportive of the inherent brand equity in its mix. From our vantage point, it is these factors that have enabled Colgate’s global toothpaste market share to hold around the mid-40s for the better part of the last decade, and we don’t expect its share position will be permanently eroded.